Consumer Price Index Shows Inflation Still Hot Despite Sharp Drop In Gas Prices
Inflation was still red hot in August, despite a sharp drop in gas prices. The Bureau of Labor Statistics (BLS) released its Consumer Price Index (CPI) on Sept. 13 and the all-items index for the 12 months ending August increased 8.3%, driven largely by soaring shelter, food and medical care prices.
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This is the last big economic indicator before the Federal Reserve announces its rate decision next week, at the end of its Sept. 20-21 meeting — and many analysts see the data as further cementing the Fed’s aggressive stance.
The figure was higher than expectations, as economists surveyed by The Wall Street Journal expected the CPI, which measures what consumers pay for goods and services including clothes, groceries, restaurant meals, recreational activities and vehicles, to have decreased to 8% in August.
“The cards have been played for the Fed and aggressive rate hikes will likely continue next week. Despite a 10.6% decrease in the gasoline index, a hot topic alongside inflation and geopolitical activity, CPI rose 0.1% to 8.3% and Core CPI rose 0.6% to 6.3%, a surprise against expectations,” Ben Vaske, investment research analyst at Orion Advisor Solutions, told GOBankingRates. “While gas prices coming off their highs has been a positive for the average consumer’s wallet, there are still significant inflationary pressures on the U.S. economy in areas like food, healthcare, and transportation, almost certainly pointing to further hawkish activity from the Fed.”
Indeed, in August, the energy index fell 5%, still bringing the index rising to 23.8% over the past 12 months.
The gasoline index fell 10.6 % over the month following a 7.7% decrease in July, bringing the index rising 25.6% over the past 12 months.
The electricity index, however, increased 1.5%, while the index for natural gas also increased over the month, rising 3.5%. This brings the electricity index up 15.8%, the largest 12-month increase since the period ending August 1981.
John Catsimatidis, CEO of Red Apple Group and CEO of Gristedes & D’Agostino’s Supermarkets told GOBankingRates that as a business owner, he recognizes that we are in a day-to-day and month-to-month situation when it comes to inflation.
“For the last 18 months, inflation has been driven by the cost of oil, and given oil’s significant drop, these inflation figures reflect that,” he said. “Indications are that the Fed will continue to raise interest rates, further impacting other industries including real estate across the country. I encourage the Fed’s leadership to proceed with caution and moderation, in the interest of helping businesses that would be adversely impacted by another rate hike.”
Catsimatidis added: “We took precautions during COVID to prevent the collapse of our economy. We should also take precautions not to collapse our economy because of the temporary oil surge, that has reversed itself and can continue to reverse itself, even though we are being fought by Russia and the OPEC nations, who want $100+ oil per barrel.”
Taking out food and energy indexes, all other indexes increased 0.6% in August, up 6.3% over the past 12 months, the BLS report showed.
Overall, the shelter, food and medical care indexes increased the most for the month.
The shelter index increased 0.7% in August, an increase compared to the 0.5% increase in July, while the rent index rose 0.7% and the index for lodging away from home rose 0.1%.
In August, the food index saw the smallest monthly increase since December 2021, up 0.8% in August. Meanwhile, the food at home index rose 0.7% in August, bringing the index up 13.5% over the last 12 months, the largest 12-month increase since the period ending March 1979, according to the BLS.
The BLS report showed that in August, all six major grocery store food group indexes increased.
The index for cereals and bakery products rose 1.2% over the month. The meats, poultry, fish, and eggs index; the fruits and vegetables index and the nonalcoholic beverages index all increased 0.5% in August, while the index for dairy and related products increased 0.3% over the month.
As for the medical care index, it rose 0.7% in August, following July’s 0.4% increase. In addition, the index for hospital services increased 0.7% over the month, while the index for prescription drugs increased 0.4%.
The BLS showed that the indexes that declined over the month included the index for airline fares, decreasing 4.6%; the communication index, which fell 0.2% in August and the index for used cars and trucks, which declined 0.1% over the month.
“The latest inflation data show that, despite the Fed’s interest rate increases, inflation remains at persistently high levels and that more rate increases will be necessary through the end of this year and potentially beyond to bring CPI down to the target range,” Charlie Wise, Head of Global Research & Consulting at TransUnion, told GOBankingRates.
In terms of what this means for Americans’ wallets, Wise added that it will translate into higher borrowing costs and increased monthly payments for consumers who make new home and auto purchases, as well as slightly higher interest payments on credit card balances.
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He added, “While many consumers have benefitted from higher incomes over the past year, the combined impacts of high inflation on everyday living expenses and of higher interest rates on borrowing costs suggest that consumers need to be increasingly diligent about budgeting and managing their finances to ensure they are able to manage their debt service.”
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This article originally appeared on GOBankingRates.com: Consumer Price Index Shows Inflation Still Hot Despite Sharp Drop In Gas Prices
