MARY LOUISE KELLY, HOST:
To the economy now and news that inflation fell to its lowest level in more than three years last month. That is according to the Labor Department, which this morning released its latest cost of living report. President Biden told reporters at the White House the period of runaway prices is coming to an end.
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PRESIDENT JOE BIDEN: Yes, yes, yes. I told you we're going to have a soft landing. We're going to have a soft landing. My policies are working. Start writing that way, OK?
KELLY: NPR's Scott Horsley joins me now with details of the report out today. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Mary Louise.
KELLY: OK, so President Biden there very much claiming credit for falling inflation. What's happening?
HORSLEY: Yeah, I'm not going to try to assign credit or blame here, but what is certainly true is that inflation has come down a lot from where it was a couple years ago. Consumer prices in July were up just 2.9% from a year ago. That's the smallest annual increase in over three years. And it's been a long time since we had an inflation rate that started with the number two.
KELLY: Yeah.
HORSLEY: Some prices actually came down over the last year - gasoline, used cars, airfares. Grocery prices, which soared at double-digit rates back in 2022, rose just a little over 1% last year. So all that is moving in the right direction. Housing inflation, though, still kind of sticky. And that's a sore point for people like Alex Spangler, who lives in Denver. Her rent's gone up a lot in the last few years, to the point where it's now consuming almost half her income.
ALEX SPANGLER: Even with significant pay bumps, it's pretty unaffordable to live here in Denver. And I don't see those housing costs coming down any time soon.
HORSLEY: We still have a big shortage of housing in the country, and that remains one of the big drivers of inflation, even as a lot of other prices start to level off or even fall.
KELLY: Now, as we know, Scott, the Federal Reserve has been trying to fight inflation with high interest rates. Have prices leveled off enough that the Fed may start to really think about boosting the economy and cutting rates?
HORSLEY: You know, inflation is still higher than the Fed's target, which, as we know, is 2%. But the Fed said all along it doesn't have to wait for inflation to get all the way down to 2% in order to start cutting interest rates. It just has to be confident that inflation is moving in that direction. And I think today's report is another step in building that confidence. Financial markets are pretty much convinced the Fed is going to cut rates in September.
The only question is whether it cuts by a quarter percentage point or half a point. And that could depend on what happens in the job market. You know, if the job market is holding up pretty well, look for the Fed to make a modest quarter point rate cut. If the job market shows more signs of weakness, then the Fed might be more aggressive and cut rates by half a point.
KELLY: You just heard President Biden there sounding a little testy, talking about a soft landing. What do these new numbers on inflation mean for Vice President Harris?
HORSLEY: Yeah, well, inflation has been a real political liability for this administration. And certainly, if inflation falls, that's better for the Democrats. But more than what the consumer price index tells us is what people tell us about how they're feeling about the economic situation. And even though inflation has come down a lot, many people are still frustrated with the cumulative effect of price increases over these last three years. Ricky Colina, who's a librarian in Tampa, says he and a lot of his friends still feel that squeeze.
RICKY COLINA: People with, like, careers, people with degrees, they should be able to afford and live comfortably. But that's just not how it is anymore.
HORSLEY: In most cases, prices are not going back to their prepandemic levels, and anyone who's waiting for that is likely to be disappointed. If we're lucky, though, wages will catch up to these higher prices. And on average, wages have been outpacing price increases for over a year now.
KELLY: NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome.
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