US inflation rose in August by the most in over a year as a pickup in prices at the gas pump exacerbated already strained household budgets.
(Bloomberg) — US inflation rose in August by the most in over a year as a pickup in prices at the gas pump exacerbated already strained household budgets.
The consumer price index increased 0.6% from the prior month, the most since inflation peaked at a four-decade high in June 2022. Gasoline costs accounted for over half of the advance, according to the report from the Bureau of Labor Statistics, and Americans also saw higher prices for essentials like car insurance and prescription drugs.
Even when stripping out energy and food prices, the so-called core CPI accelerated on a monthly basis for the first time since February. Federal Reserve officials are more attuned to this measure, and the pickup likely leaves the door open to another interest-rate hike this year.
Read more: US Core CPI Picks Up, Keeping Another Fed Hike in Play This Year
The figures reinforce the financial stress that American families have been dealing with for over a year. While prices aren’t rising as quickly as they were in 2022, just about everything costs more than it used to and purchasing power is losing steam.
Even though workers are finally starting to see their wage gains outpace price growth, the difference is narrowing. Inflation-adjusted pay rose 0.5% from a year earlier, marking a second month of decelerating earnings growth, a separate report showed Wednesday.
That makes the pain of the cost-of-living crisis that much worse. Energy costs rose broadly — including a 10.6% monthly increase in gasoline prices, which was the largest since March of last year. Utility costs increased as well.
Grocery prices also rose, but at the slowest annual pace in two years. And for families with children, the cost of baby formula and childcare continued to rise.
“The recent firming in prices for every-day necessities after easing over the past year suggests further improvement on inflation is likely to be slower-going ahead,” Wells Fargo & Co. economists Sarah House and Michael Pugliese said in a note.
Read more: Why Are US Gas Prices Going Up? When Will They Fall? QuickTake
Here are some of the categories that saw notable price advances:
The report adds to concerns that the renewed momentum in the economy is reigniting price pressures. While Fed officials have been growing more optimistic they can tame inflation without a recession, a re-acceleration in price growth could prompt them to push interest rates even higher and risk sparking a downturn.
However, unlike last year when prices were broadly rising, the report highlights the bumpy nature of getting inflation back in line. Households saw some reprieve in other categories, notably merchandise like televisions as well as certain kinds of clothing and furniture.
“If you look at the distribution of prices, now we have a mix of price declines and price increases,” said Julia Coronado, founder of MacroPolicy Perspectives LLC and a former Fed economist. “Consumers are more price sensitive than they have been.”
Shelter prices, which are the biggest services component and make up about a third of the overall CPI index, increased 0.3%, as a decline in the cost of hotel stays tempered higher rents. A moderation in housing costs is an essential feature for a sustained downward trend in core inflation.
Excluding housing and energy, services prices rose 0.4% from July, the fastest in five months, and 4% from a year ago, according to Bloomberg calculations. While policymakers have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
What Bloomberg Economics Says…
“We think the Fed is likely to look through the energy-price increase, but it’s not clear they’ll do the same for the increase in transportation services – after learning the hard way in 2021 that they shouldn’t dismiss potentially sticky inflation coming from a single category.”
— Anna Wong and Stuart Paul
To read the full note, click here
While inflation expectations have remained stable and the job market largely resilient, Americans are growing more pessimistic about the economy. Still-elevated prices of essentials have forced many to rely on credit cards or savings to support spending. And the imminent resumption of student loan payments will be a renewed burden for millions of borrowers.
Businesses are also souring on the outlook. A report earlier this week showed the share of small businesses raising selling prices rose in August for the first time in nine months. And more owners cited inflation as their single biggest problem.
“These numbers are not a game-changer, but they do offer a reminder that inflation is far from dead,” Stephen Stanley, chief economist at Santander Capital Markets US, said of the CPI report.
–With assistance from Reade Pickert and Jonnelle Marte.
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