Policy- The Consumer Price Index gained 8.3% year-over-year in August, the government said Tuesday.
- The reading showed inflation slowing from the prior pace of 8.5% but missing the 8.1% forecast.
Inflation is proving much more difficult to tame than expected.
The Consumer Price Index climbed 8.3% in the year through August, the Bureau of Labor Statistics announced Tuesday. Economists surveyed by Bloomberg expected the measure to slow to 8.1%. The report reflects a sizeable deceleration from the 8.5% pace observed in July and the slowest headline inflation since April.
The index also rose 0.1% in August alone, landing above the median forecast for a 0.1% drop. The increase comes after CPI was largely unchanged through July. Though the uptick was small, it highlights that several factors are still putting significant upward pressure on prices.
The print marks a second straight month of easing inflation after more than a year of blistering acceleration. June seems to mark the peak of pandemic-era inflation, with the one-year rate now down more than a percentage point from that reading. The future remains uncertain, and several factors, including supply-chain snags and holiday shopping, could lift price growth for some time. Yet with interest rates on the rise and Americans' demand fading, the latest CPI report backs up the narrative that inflation is squarely on the way back down.
Energy prices counted for much of the August slowdown, with costs falling 5% through the month. Prices at the pump contributed significantly, as waning demand and rebounding supply have reversed much of the run-up seen through the spring and early summer. The gas-price index fell 10.6%, and average prices seen through early September signal the downtrend will last into the fall.
Used vehicle prices also helped slow inflation. The prices of previously owned cars and trucks slid 0.1% in August, further reversing the rally that helped pull inflation higher in early 2021.
New vehicles, however, posted another hefty price hike. Prices in the sector rose 0.8% in August, accelerating from July's 0.6% gain and reflecting the largest one-month increase since May.
The cost of housing edged higher last month, gaining 0.7% after climbing 0.5% the month prior. Shelter now costs 6.2% more than it did one year ago, and while the housing market has cooled dramatically through the summer, rents are still elevated throughout much of the US.
Food costs drove month-over-month inflation higher as well. The cost of food climbed 0.8% last month, with both food at restaurants and groceries posting gains. Though that's slower than the 1.1% increase seen in July, it signals inflation is still running strong in some of the most important corners of the economy.
Underlying price-growth dynamics may be harder to tame than the headline gauge suggests. Core CPI inflation, which strips out volatile food and energy prices, rose 6.3% in the year through August, coming in above the median forecast of a 6.1% pace. That marked an uptick from the 5.9% year-over-year rate seen in July. The core measure is generally regarded as a better measure of inflation trends, and the latest data shows prices in much of the economy are still on the rise.
The hotter-than-expected reading tees the Federal Reserve up for another jumbo-sized interest rate increase when officials meet later in September. The central bank has been raising rates at the fastest pace since the 1980s in a bid to cool Americans' demand and put downward pressure on inflation. Yet rate hikes typically don't have a large effect until several months after they're issued, meaning the increases announced earlier in 2022 likely aren't pulling inflation lower just yet.
Fed Chair Jerome Powell signaled in August 26 remarks that the central bank is nowhere near done raising rates, and that hiking quickly is preferable to letting inflation stay elevated. It's no surprise, then, that markets are betting on policymakers to raise rates by another 0.75 percentage points — triple the size of their typical increase — later in September. That would mark the third such hike since June.
A triple-sized increase won't immediately dampen inflation. But the latest CPI data shows prices still ripping higher through much of the economy, the Fed is more likely to go big than hold back.