Prices on goods and services increased more than experts predicted in August, according to the latest Consumer Price Index (CPI) report released by the US Department of Labor. Inflation posted its most significant monthly increase since the beginning of the year, climbing by a seasonally adjusted 0.6% since July and was up 3.7% from a year ago. The two numbers were up 0.2% and 3.2% in July.
The so-called core CPI, which excludes the more volatile prices of food and energy and is closely watched by the Federal Reserve Bank as a better indication of where inflation is heading over the long term, also came in hotter than expected. It increased 0.3% on a monthly basis and 4.3% compared to the year prior, its smallest advance in nearly two years.
The sharp increase in energy prices, including a 10.6% surge in gasoline prices in the past month, is the primary reason behind this setback. Food prices rose 0.2%, while shelter costs, which make up about one-third of the CPI weighting, climbed 0.3%.
Although inflation has decreased significantly since its June 2022 peak of 9.1%, it remains an ongoing concern. The latest Census Bureau’s annual reports on income, poverty, and health insurance coverage show that US inflation-adjusted household income fell in 2022 by the most in over a decade. Last year’s median income dropped to $74,580 compared with $76,330 in 2021, a 2.3% decline and the third-straight annual decrease. In addition, inflation-adjusted pay rose 0.5% from a year earlier, marking a second month of decelerating earnings growth.
Tough Decision For the Fed
Experts widely expect that the Fed will keep interest rates steady at its next meeting, set to take place on September 19-20. However, they do not rule out more upcoming hikes in November or December. “These data are supportive of a pause in September,” said Rubeela Farooqi, chief US economist at High Frequency Economics. “However, the FOMC is not likely to declare victory until it sees further evidence of improvement towards the 2% target. They will remain open to further rate hikes if needed.”
The tight labor market, which has been one of the driving forces behind the high inflation rates, is showing signs of softening. However, surging energy prices may raise inflation expectations in the coming months. Fed officials have been cautiously optimistic about an elusive “soft landing,” allowing them to successfully tame inflation without throwing the economy into a recession. A re-acceleration in prices could dampen this positive take.
We’ll keep you updated on further developments. In the meantime, if you’d like more information about buying/selling or refinancing in today’s market, give us a call or drop us an email.
