Despite falling gas prices, US inflation ticked up in August, according to data released by the Bureau of Labor Statistics Tuesday.
The Consumer Price Index, which measures prices for a basket of consumer goods and services, showed a 0.1% increase from July. The inflation rate was expected to fall by 0.1% from July to August, after remaining steady at 0% growth between June and July.
For the second straight month, annual inflation eased, but remains stubbornly high at 8.3%. The increase in July was 8.5%, and June was 9.1%, a 40-year high. A decline in the headline CPI rate in consecutive months last occurred in the first half of 2020.
In August, the core CPI, which excludes food and gasoline, increased from 6.2% in July to 6.3%. Compared with expectations, the monthly gain of 0.6% was twice as high as analysts expected.
As a result of the news, US stocks tumbled, with the Dow dropping more than 800 points by midday. In order to combat high inflation, investors fear the Federal Reserve will have to take more drastic measures. It is possible for the US economy to be seriously damaged by another prolonged period of historic rate hikes.
For American consumers with limited wiggle room in their monthly budgets, historically high inflation persists as a source of pain.
“The August data is not as positive as we hoped,” said Sung Won Sohn, professor of economics at Loyola Marymount University and president of SS Economics. “Inflation is certainly alive and well.”
The volatile gasoline category showed the only significant decline from July, dropping 10.6%. Other categories saw price increases, including shelter, which rose 0.7% in August and is up 6.2% year-over-year, the largest increase since 1991.
Sohn pointed out that labor costs and rent increases are both trending in the wrong direction and increasing at a considerable rate.
As the Fed prepares for its policy meeting next week, Tuesday’s report – particularly core CPI – will be closely examined.
According to Mark Zandi, senior economist at Moody’s Analytics, the Federal Reserve will not be satisfied until the job market and wage growth moderate and core inflation returns to target.
From 18 months ago, annual price increases were far higher than the Federal Reserve’s target inflation rate of 2%.
Fed Governor Christopher Waller told reporters last week that the central bank is focused on hitting its 2% inflation target and can’t walk away.
As part of its efforts to help reduce inflation, the Fed has tightened its monetary policy in recent months, implementing back-to-back, 75-basis-point rate hikes.
Seema Shah, chief global strategist of Principal Global Investors, said August’s inflation data pretty much solidifies a third 75-basis-point rate hike this year.
As a clear sign that the need to keep raising rates remains undiminished, core CPI is once again on the rise, confirming the persistent nature of the inflation problem in the United States. She added that 70% of the basket’s prices are rising over 4% month over month on an annualized basis.
In her view, pivots and pauses cannot happen until the Fed is able to tame that beast.
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