Inflation: CPI rose in August even as gas prices fell

Consumer prices in August rose 0.1 percent compared to the previous month, despite lower gas and energy costs. A number of economists had hoped Tuesday’s statement would show inflation is finally falling, but a new government report showed that price increases remain stubbornly high, especially for food and housing.

Data released by the Bureau of Labor Statistics on Tuesday showed that August prices rose 8.3 percent from a year earlier. This is lower than the 8.5 percent achieved Julyand 9.1 percent of June But it is still higher than expected given the sharp drop in gasoline prices in recent weeks.

Policymakers, economists, and the US public are eager for consistent signs that inflation has peaked this summer after climbing to a 40-year high.

Tuesday’s monthly report, known as the Consumer Price Index, offered little reassurance. The food index rose 11.4 percent over the past year, the largest increase in 12 months since May 1979. Food prices rose only 0.8 percent in the last month. Costs for housing, medical care, new cars and home furnishings increased from the previous month.

There were some exceptions. The gasoline index was down 10.6 percent as prices at the pump fell from their summer highs. The costs of airline tickets and used cars have fallen.

Inflation is the biggest problem in the economy, and its losses are less harder On vulnerable families who don’t have enough space to absorb the rising costs of rent, groceries and everything in between.

The Federal Reserve fights inflation by raising interest rates, which are designed to slow the economy by making all kinds of investments and loans — from mortgages to auto loans to employment — more expensive. The Fed’s goal is to use higher rates to dampen demand in the economy, especially since its tools can’t do anything to fix problems like supply chain bottlenecks, labor shortages or the war in Ukraine.

“There is a broader story than just ‘falling prices’,” said Joe Brusolas, chief economist at RSM.

Americans are finally feeling better about the economy

But the struggle against Inflation brings dire consequences, and can eventually shake the economy too strongly, leading recession A new wave of job losses. Still, the Fed sent a clear message: It’s pushing.

“While high interest rates, sluggish growth, and weak labor market conditions will lower inflation, they will also cause some pain to households and businesses,” Fed Chairman Jerome H. Powell He said In a speech he delivered closely last month. These are the unfortunate costs of lowering inflation. But a failure to restore price stability would mean much greater pain.”

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Inflation also plays a political role, affecting the midterm elections. The Biden administration has come under fire from Republicans for its sprawling stimulus efforts from earlier in the pandemic that helped revitalize the economy. And this summer, rising gas prices in May and June further strained Americans’ sentiments about the economy, causing consumer sentiment to deteriorate and President Biden’s poll numbers to plummet. But gas prices have been steadily declining. After topping $5 in June, the national average for a gallon of gas was $3.70 on Tuesday, According to AAA.

Republicans were looking to frame their political message around inflation as they vie for control of the House and Senate. However, inflation has been lately lose some potency With voters, especially since gas prices have consistently fallen from their summer highs and the job market It’s still moving.

In fact, Americans are too I’m starting to feel better About the economy, consumer sentiment, which collapsed in June, is on the rise. Lynne Farrell, president and owner of Chicago-based Windy City Travel, said business is booming, especially when it comes to luxury travel. People want to travel first class after long vacations. Farrell will bundle safari packages for customers looking for more extravagant excursions.

Farrell said airfares have fallen due to their summer hikes. And for those who can afford it, sheer excitement lowers the inflation toll.

“Travel is an interesting measure of consumer confidence,” Farrell said, en route to Chicago after a staff trip in Cancun. “We see that when consumers start to get a little anxious, booking times get shorter, or people don’t book far away. … But travel may actually get away with a lot of what’s going on in the economy because there’s pent-up demand.”

The Fed is ready to go ahead with raising interest rates

Scan data Monday’s release from the Federal Reserve in New York also showed that US consumers expect significant declines in future inflation levels. This is welcome news for Federal Reserve officials who gather for their September policy meeting next week. Inflation expectations can be self-fulfilling, and the Fed’s job becomes more difficult if households and firms expect inflation to remain high and change their behavior as a result.

The Fed raised interest rates at the most aggressive pace in decades, increasing them by a whopping three-quarters of a percentage point in July. Watchers of the Fed and financial markets are increasingly anticipating Another increase From that range next week, the Fed will quickly raise interest rates enough to slow the economy.

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“[The Fed] “Listen, we’re not where we need to be, but at least we’re not as far away as we used to be,” said Diane Sonk, chief economist at KPMG.

However, the Fed’s moves can only address certain problems in the economy. Russia’s invasion of Ukraine in February caused a massive increase in energy and gas prices this year, as did White House officials annoyed A looming energy crisis in Europe follows Russian President Vladimir Putin’s threats to impose a bleak winter on the continent.

“Advances in inflation may not prove defensible if geopolitical tensions intensify and Russia cuts off all oil supplies,” Brusolas said. “Then we will face another series of supply shocks.”

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