Inflation ticked down to 8.3% for the 12 months ending in August, according to the consumer price index, hotter than expected but still a decline from the month before.
The much-anticipated numbers reported by the Bureau of Labor Statistics on Tuesday revealed that while it ticked down, inflation is still high despite the Federal Reserve’s aggressive interest rate hikes. July’s headline CPI reading clocked in at 8.5%.
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The soaring inflation has eaten into President Joe Biden’s approval ratings as he and Democrats approach the midterm elections.
So-called core CPI, which strips out volatile food and energy prices, increased by 0.6% in August, more than expected and more than the previous month. The figure shows that inflation is still a huge concern for the Fed and for households.
The gasoline index fell 10.6% in August, which offset increases in food and shelter costs. The energy index fell 5% on the month but is still up a sky-high 23.8% for the 12 months ending in August. Food prices increased more than 11% during that same period, according to the report.
“The new numbers contradicted expectations of ongoing inflation moderation,” Victor Claar, an economics professor at Florida Gulf Coast University, told the Washington Examiner. “Core inflation was the largest surprise today. … While gas prices have been falling, they’re not falling fast enough to overcome other price inflation in most consumer spending categories. Working families aren’t seeing any relief yet.”
Consumer prices have been rising fast since last August, especially for staples such as food and gas.
Tuesday’s CPI report comes as the central bank works to hike interest rates aggressively in order to dampen consumer demand and thus lower prices.
In July, following a two-day meeting, central bank officials announced that the Fed would increase its interest rate target by three-quarters of a percentage point. The central bank usually hikes rates by just a quarter of a percentage point, so the move was analogous to three concurrent rate hikes, which shows just how eager the Fed is to tame inflation.
July’s rate hike came after the Fed hiked rates by the same massive margin in June and conducted two other rate increases in March and May.
The Fed is set to meet later this month to decide on how big its next rate hike should be. Most investors are betting that the increase will clock in at another 75 basis points, although central bank officials are examining Tuesday’s CPI report closely to determine their next moves.
One major factor dragging down the headline number on inflation is declining gasoline prices. The average price of gas in the United States broke record highs in June, surpassing $5 a gallon, according to AAA. Since then, oil prices have cooled, and gas is now averaging $3.72 per gallon.
There are fears that the Fed’s aggressive rate-hiking will result in the U.S. tumbling into a recession.
GDP fell at a 0.6% annualized rate in the second quarter, according to a revised estimate by the Bureau of Economic Analysis. The numbers come after negative 1.6% GDP growth in the first quarter. Many economists have traditionally regarded two quarters of negative GDP growth as recessionary.
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There are some indicators pushing back on the notion that the economy is in a recession, though — the biggest one being the country’s unexpectedly resilient labor market.
The economy beat forecasts and notched 315,000 jobs in August. The unemployment rate is also still quite low at 3.7%, just a touch higher than it was when the economy was thriving right before the pandemic.
