Consumer prices rose by a modest 0.2% in August, bringing the annual inflation rate to 2.5%, the lowest level since early 2021. This marks a significant slowdown from the peak inflation of 9.1% in June 2022. Core CPI, which excludes food and energy prices, increased by 0.3% in August, slightly above expectations.
The 12-month core inflation rate remained at 3.2%. This higher-than-expected core inflation may complicate the Federal Reserve’s decision on interest rate cuts. Seema Shah, Chief Global Strategist at Principal Asset Management, noted, “This isn’t the CPI report the market wanted to see.
With core inflation coming in higher than expected, the Fed’s path to a 50 basis point cut has become more complicated.”
The shelter index, a significant component of CPI, rose by 0.5% and is now up 5.2% year over year. Food prices saw a small increase of 0.1%, while energy costs fell by 0.8%. Used vehicle prices decreased by 1%, medical care services declined 0.1%, and apparel prices rose by 0.3%.
Egg prices jumped by 4.8%.
Inflation’s impact on core rates
On a positive note, real earnings increased, with average hourly earnings outpacing the monthly CPI increase by 0.2%.
Over a 12-month period, inflation-adjusted average hourly earnings rose 1.3%. However, job creation has slowed significantly since April, nearly halving compared to the previous five months. The Fed now faces the challenge of balancing the fight against inflation with preventing a broader economic slowdown.
Lisa Sturtevant, Chief Economist at Bright MLS, emphasized, “Although inflation has eased, it does not mean that the prices of things that people buy have actually fallen. It just means that prices are not increasing as fast.”
In specific sectors, airline fares increased 3.9% in August after declining for five months. Motor vehicle insurance continued to rise by 0.6%, pushing the 12-month increase to 16.5%.
Hospital and related services costs jumped 0.4% and are up 5.8% from last year. Gasoline prices fell 0.6% in August and are down 10.3% from a year ago. As the Fed prepares for its upcoming meeting, markets are already pricing in lower rates.
However, the path forward for monetary policy remains uncertain due to the complex economic landscape.
- NPR.”Inflation falls to its lowest level in more than 3 years. Here’s what that means”.
- APNews.”Federal Reserve signals end to inflation fight with a sizable half-point rate cut”.
- CNBC.”Consumer prices rose 0.2% in August as annual inflation rate hits lowest since early 2021″.