Inflation is proving to be more difficult to control than thought.
The Bureau of Labor Statistics reported Tuesday that the consumer price index increased in the year through August. The economists were expecting the measure to slow to 8.1%. The report shows that the headline inflation rate in July was the lowest since April.
In August, the index rose 0.1%, which was above the median forecast for a 0.1% decline. The increase is the result of the unchangedCPI through July. Several factors are still putting upward pressure on prices despite the small increase.
Inflation fell for the second month in a row after a year of rapid growth. The one-year rate has fallen more than a percentage point from the reading in June. There are a number of factors that could lift price growth for a while. With interest rates on the rise and Americans' demand waning, the latest report shows that inflation is on the way back down.
The cost of energy fell through the month. Much of the run-up seen through the spring and early summer has been reversed by waning demand and a rebound in supplies. The decline in the gas-price index is a sign that the downtrend will continue into the fall.
Inflation was slowed by the prices of used vehicles. In August, the prices of previously owned cars and trucks fell for the second month in a row.
Another big price hike was posted by new vehicles. The largest one-month increase since May occurred in August as prices in the sector rose 0.8%.
The cost of housing rose 0.7% in the month of February. While the housing market has cooled through the summer, rents are still elevated throughout much of the US, and shelter now costs 6.2% more than it did a year ago.
Inflation was driven by food costs. The cost of food at restaurants and grocery stores increased last month. Inflation is still running strong in some of the most important corners of the economy, even though it is slower than in July.
The headline gauge suggests that it's easier to tame underlying price-growth dynamics. In the year through August, core inflation, which excludes volatile food and energy prices, rose 6.3%, coming in above the median forecast. The year-over-year rate was up from July's rate. The core measure is considered to be a better measure of inflation trends and the latest data shows prices are still on the rise.
The hotter-than- expected reading puts the Federal Reserve in a position to raise the interest rate. Since the 1980s, the central bank has been raising rates in order to cool Americans' demand and keep inflation in check. Rate hikes don't have a big effect until several months after they're issued, meaning the increases announced earlier in 2022 aren't pulling inflation lower just yet.
Powell said in August that the central bank is not done raising rates and that hiking quickly is better for inflation. Markets are betting that policymakers will raise rates by 0.75 percentage points in September, triple the normal increase. Since June, there have been three such hikes.
A triple-sized increase isn't going to make a big difference in inflation. The Fed is more likely to take action now that the latest inflation data shows prices are still high.
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