Inflation Is Still High, Rising 8.3% in August

Even with a 10.6% drop in gasoline prices, food and other commodities were up, offsetting any price relief.

September 13, 2022

ALEXANDRIA, Va.—Inflation last month rose 8.3% over August 2021 but slowed slightly compared to 8.5% in July and 9.1% in June, reports the Wall Street Journal. However, when looking at the core consumer-price index, which excludes energy and food prices, inflation was up 6.3% year over year, and up sharply from 5.9% in both July and June.

Month over month, the core Consumer Price Index rose 0.6% in August, which was double July’s pace. Core inflation is closely watched by investors and policymakers because it can replace broad, underlying inflation and predict future inflation.

Gasoline prices were down 10.6% in August, but high food prices, new vehicles, medical care, education, electricity and natural gas offset the drop in fueling up. Both food and new vehicle costs were up 0.8% in August over July.

“Consumers are getting relief at the pump, and there should be further relief coming at the gasoline station and the grocery store, since one of the biggest costs of food is transporting it,” Ryan Sweet, senior director of economic research at Moody’s Analytics, told the Journal. “But in the last few months, price increases have broadened out.”

U.S. stocks were down in response to the inflation numbers released by the Labor Department this morning, as they were higher than expected. Investors were anticipating inflation to cool off slightly, allowing the Federal Reserve to moderate its planned interest-rate hike. Economists surveyed by The Wall Street Journal had expected consumer prices to rise 8% annually in August.

“Inflationary dynamics are improving and moving in the right direction, but they’re still running way too hot for comfort, either for individuals and businesses or the Federal Reserve,” Kathy Bostjancic, chief U.S. economist at Oxford Economics, told the Journal.

The Fed’s next meeting is in a week, and officials have increased interest rates by 0.75 percentage point during the past two meetings. It appears that the Fed will raise interest rates again of a similar size.

“This idea that we’re going to get to a soft landing gets less and less likely if the Fed needs to do more work in order to curtail the inflationary pressures,” Matt Forester, chief investment officer of Lockwood Advisors at BNY Mellon Pershing, told the Journal.

Fed Chairman Jerome Powell said the rate increases bring down inflation, but they also “bring some pain to households and businesses.”

The average household is spending $460 more each month to buy the same basket of goods and services as last year, Moody’s Sweet, told the Journal.

Inflation started increasing significantly last year when the economy began its recovery after the COVID-19 lockdowns, and prices increased due to strong consumer demand, low interest rates, government stimulus checks and supply-chain snarls, as well as the Russian-Ukraine war.

A bright spot is that supply-chain issues have started to work out, with the New York Fed’s index of supply-chain pressure for August falling to its lowest point since January 2021. Another high point is that the labor market is still strong, with U.S. companies adding 315,000 jobs last month, and the unemployment rate remains low at 3.7%.