📝Inflation Progress Likely to Get More Difficult Ahead: Wells Fargo

Despite a strong rise in prices in August, the trend in inflation has cooled since the spring. On a three month annualized basis, CPI excluding food and energy has fallen to 2.4%—the slowest pace since March 2021. Even the more backward-looking 12-month change, at 4.4%, has eased to nearly a two-year low. The downward trend in inflation has also broadened out, with fewer categories seeing prices rise in excess of 2% and more seeing prices decline outright.

That said, there still remains ground to cover in returning inflation to 2.0% on a sustained basis. Moreover, progress in reducing inflation over the next 12 months is likely to be more difficult than the past 12 months. The sizable drag on inflation from lower commodity prices has faded, while the pace of goods deflation is likely to slow with some initial froth worked off of vehicle prices. The road back to the Fed's inflation target is expected to remain bumpy as a result. The recent slowdown in inflation should be enough to keep the FOMC from hiking further this cycle, but with the path back to 2% likely to hold some further twists and turns, we expect rate cuts to be still be a ways out.

- Wells Fargo