WASHINGTON (AP) — Falling gas costs have slowed U.S. inflation for a second consecutive month in August, but most other prices in the economy continued to rise, proof that inflation remains a heavy burden for US households.
Consumer prices jumped 8.3% last month from a year earlier, the government said on Tuesday, following an 8.5% jump in July and a four-decade high of 9.1%. in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.
But excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August – up sharply from 0.3% the previous month and dashing hopes , for now, that core prices would moderate. And in the year to August, core prices jumped 6.3% from July’s 5.9%. Rents, medical care services and new cars all went up last month.
Core prices generally provide a clearer reading of where costs are headed than headline inflation. Stock prices fell and bond yields jumped to worse-than-expected core numbers as many investors feared the Federal Reserve could become even more aggressive in its bid to rein in inflation. The Dow Jones Industrial Average fell more than 800 points in early trading.
Further Fed rate hikes could weaken growth to the point of pushing the economy into recession. Some economists now expect the Fed to raise its benchmark short-term rate, currently in the 2.25% to 2.5% range, to 4.5% or more. This would make it even more difficult for the central bank to achieve its goal of a “soft landing, whereby it tames inflation without causing a recession.”
“It was a disappointing report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “This increases the risk of higher interest rates and a hard landing in the economy.”
Chairman Jerome Powell is expected to announce another large increase in the Fed’s key rate next week, which will drive up costs for many personal and business loans.
Inflation is higher than many Americans have ever seen, driving up grocery bills for families, the rents and utility costs, among other expenses. He has deep darkness on the economy despite strong job growth and low unemployment.
Grocery prices continue to rise rapidly, jumping 0.7% from July to August. Over the past year, they have climbed 13.5%, the biggest 12-month increase since 1979.
Chicken prices have jumped nearly 17% over the past year. And egg prices jumped 2.9% in August alone from July and were up nearly 40% from a year ago.
Republicans have sought to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s $1.9 trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they say tangled supply chains, Russia’s invasion of Ukraine and widespread shortages of items like semiconductors have also been key factors. of the surge in inflation.
At the same time, lower gasoline prices — for consumers, perhaps the most visible barometer of inflation — could bolster Democrats’ prospects in the midterm election. That may have already contributed to slightly higher public approval ratings for Biden.
In his speeches, Biden generally stopped referring to the impact of inflation on family budgets. Instead, he highlighted his administration’s recent legislative accomplishments, including a law enacted last month aimed at reducing pharmaceutical prices and combat climate change.
Nationally, the average cost of a gallon of gas has fallen to $3.71 from just over $5 in mid-June.
But prices for many other goods continue to rise even as supply chain issues unravel, Rosner-Warburton pointed out. Furniture, carpets and new cars became more expensive last month, suggesting companies are continuing to raise prices in the face of strong consumer demand.
“Companies continue to experience significant price increases for these goods, and that’s problematic,” she said. That means the Fed will likely have to work harder to undo consumer spending through higher rates.
Elaine Buckberg, chief economist at General Motors, said pandemic disruptions to overseas semiconductor production, which slowed auto production, have dissipated significantly and overall supply chain disruptions improved by about 80% from the worst days of the pandemic.
Yet Americans are still in desperate need of cars, Buckberg said, which has allowed dealerships to maintain margins well above pre-pandemic levels.
“Virtually every vehicle that comes to a dealership has already been sold to someone,” she said.
Continued price increases for raw materials – and labor – have left many small businesses struggling. Some raise their own prices to keep pace, only to lose customersaccording to a Goldman Sachs 10,000 Small Business Voices survey.
Meaghan Thomas, co-owner of Pinch Spice Market in Louisville, Kentucky, an online spice seller, has avoided raising prices for the past two years but fears it could last if inflation gets worse.
The price for shipping spices from overseas has quadrupled, she said, and she has seen little relief so far despite reports that those costs are falling. The cost of the spices, which she and her partner grind and blend in a small factory, have jumped 25% over the past year. They plan to expand the factory, but found that the cost of wood, metal doors and other materials is higher than expected.
The company’s profit margin has been cut in half, Thomas said, but she and her partner think it’s important to keep their products affordable. She says big business has made inflation worse by raising prices unnecessarily.
“We can hold on a bit if all these other companies can stop raising their prices,” Thomas said.
Next week, most Fed watchers expect the central bank to announce a third straight three-quarter point hike, in a range of 3% to 3.25%. Rapid Fed rate increases – the fastest since the early 1980s – typically drive up the costs of mortgages, auto loans and business loans, in an effort to slow growth and reduce the inflation.
The average 30-year mortgage rate jumped to nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.
Powell said the Fed will need to see several months of low inflation readings suggesting price increases fall back toward its 2% target before pausing rate hikes.
Wages continue to rise at a healthy pace – before adjusting to inflation – which has increased demand for apartments as more and more people move on their own. A shortage of available housing has also forced more people to continue renting, intensifying competition for apartments.
Rising rents and more expensive services, such as medical care, are also keeping inflation high.