A near-record drop in clothing prices meant the cost of living for Americans eased last month, but analysts don’t expect it to last.
Consumer prices inflation, which tracks what Americans pay for both essentials and discretionary items, slipped from an annual rate of 2.9 percent to 2.7 percent, the first time it has eased since December, new figures from the Labor Department showed.
At the same time, core inflation, which strips out volatile food and energy prices was 2.2 percent, down from 2.4 percent, which was a decade high. This was driven by a 1.6 percent monthly drop in clothing prices, the largest fall in the category for seven decades.
A number of factors at play meant economists don’t expect this to be the start of a new downward trend in the inflation rate.
“There is no reason to suspect that the weaker increase in consumer prices in August is the start of another dip like we saw in early 2017,” said Paul Ashworth, chief U.S. economist at economic consultancy Capital Economics.
He added that with labor market conditions tight, wage growth accelerating and input prices being pushed up by capacity constraints and recently imposed tariffs, there is plenty of upward pressure on prices.
In particular, President Trump’s threat to unleash 25 percent tariffs on $200 billion worth of Chinese imports, many of them consumer facing, will leave retailers with little choice but to push up prices at the tills.
The prospect of higher inflation will no doubt lead the Federal Reserve to stick with its rate rising plan. Indeed, the central bank is widely expected to push up rates by a quarter point at its meeting later this month.
Consumers have already seen seven — albeit small — increases since 2015 and two more are expected this year. So far they’ve taken the increases in stride as the rises have been gradual, but that will get more difficult as rates creep upward and push borrowing costs higher.