Inflation hit a three-year low last month, just before the presidential election.
But the high cost of housing and other crucial spending will keep the economy at the center of both major campaigns, as was seen this week during the first debate between Kamala Harris and Donald Trump.
The consumer price index, a measure of inflation, rose 2.5% over the past year, the smallest boost since February 2021. According to the latest data from the Bureau of Labor Statistics released Wednesday. The main driver of the boost was shelter, which rose 0.5% in August. Airfare, auto insurance, education and clothing prices also rose this month. But wages also rose 0.4% in August and 3.8% over the past year, while the average workweek increased by 0.1 hour — good news for workers trying to keep up with the rising cost of living.
Voters continue to say the economy is key in deciding who should be president, 81%AND four out of 10 say the economy and inflation are the most important factors influencing this decision.
Trump, the former president and Republican nominee, blamed the Biden administration for high prices during Tuesday’s debate in Philadelphia, falsely claiming that the wave of inflation following the pandemic is the worst in history.
“We’ve had a terrible economy because inflation, which is really known to be a country destroyer, is tearing countries apart, we’ve got inflation like few have ever seen, probably the worst in the history of our country” – Trump he said.
The worst inflation rate in U.S. history was 14% in 1980. The current wave—the highest inflation boost since then—peaked at 9.1% in June 2022.
Democratic Vice President Harris responded to a question about the economy Tuesday by touting her tax cut proposal to combat housing costs.
“The cost of housing is far too high for far too many people. We know that young families need support to raise their children, and I’m going to extend the $6,000 child tax cut, which is the largest child tax credit we’ve given in a long time, so that these young families can afford to buy a crib, a car seat, clothes for their children,” she said.
Harris also introduced a proposal for a $50,000 tax credit for diminutive start-up businesses.
Taylor St. Germain, an economist at ITR Economics, an independent economic research and advisory firm based in New Hampshire, said the latest data suggests inflation is falling enough that it is time for the Federal Reserve to start cutting interest rates.
“It’s encouraging that inflation is slowing and coming down to much lower levels,” St. Germain said. “But of course it’s still high, and one of the reasons it’s still high is because housing costs are driving a significant portion of that inflation, and rents are also rising, especially when you look at the latest CPI report.”
The Federal Reserve began raising interest rates in March 2022 in an effort to lower inflation. During that time, interest rates have increased 11 times, with the last boost coming in July of last year.
Economists are closely watching to see if the Federal Reserve will cut interest rates at its meeting next week, which is likely to weigh on the housing market and other costs.
Kitty Richards, acting executive director of Groundwork Collaborative, a progressive think tank based in Washington, said the Federal Reserve’s decisions are contributing to rising housing costs.
“The housing problem is fundamentally a supply problem. And the Fed’s actions are actually making that supply problem worse by blocking the housing market and making it more expensive to buy, build or renovate homes,” she said. “Housing is such a big part of people’s experience in the economy, and it really does matter to them when they might want to move and look around and they can’t. They can’t even afford to buy a home that’s the same price as the home they live in because interest rates are so high.”
