Inflation in the US eases ahead of potential interest rate hike

The inflation rate in the US fell to 2.5 percent in August, aided by a base effect. Analysts expect a 25 basis point rate cut by the US Federal Reserve (Fed), as the labor market and inflation show signs of weakening.

The benchmark interest rates are currently at the highest level since 23 years. US inflation hit a 2.5% annual rate in August, the lowest since 2021. This paves the way for the Federal Reserve to cut rates, likely by 0.25 or 0.50 points.

Core inflation remains elevated at 3.2%, but falling energy and food prices drove the overall decline. The Fed will also publish forecasts on where the federal funds rate should be by year-end.

Inflation has eroded Biden's popularity. The Fed has shifted focus from its mandate of price stability to ensuring maximum employment, after the most aggressive rate hikes since the 1980s.

The Federal Reserve is set for a 0.25% rate cut next week. August CPI rose 3.2%, with housing and shelter as key factors, keeping the Fed on a measured path.