Inflation Cools to 2.5% in August

Headline inflation continues to decrease

Headline inflation dropped to 2.5% in August down from 2.9% in July. This marks the fourth consecutive month of declining inflation since it hit a four-decade high of 9.1% in June. Year-over-year, inflation is down from 8.5% in July. The biggest price decreases were for food energy and shelter.

What's driving the drop in inflation?

According to the article from the Wall Street Journal, there are several factors contributing to the decline in inflation. One is the decrease in energy prices. Gas prices are down an average of $1.30 per gallon since June. The price of oil which affects gasoline prices fell by about 25% in August alone. The decreasing energy prices had a significant impact on inflation on a whole as energy costs feed into the pricing for many other goods and services.

Another factor contributing to the decline in inflation is the improving supply chain. Shortages of goods and materials were a major contributor to higher prices earlier in the year. However the supply chain has been improving and there are fewer shortages which is leading to lower prices for goods.

What does this mean for the future of inflation?

It is still too early to say whether inflation will continue to decline. However the recent data is encouraging as the Federal Reserve attempts to bring inflation under control. The Fed has been raising interest rates in an effort to slow down economic growth and reduce demand which should lead to lower prices. The next inflation report will be released in mid-September and will provide more insight into the latest trends. Stay tuned.