U.S. inflation rose a surprise 3.7% in August as prices at the pump soared, increasing pressure on the Federal Reserve as it considers further rate hikes this fall to bring prices down.
The consumer price index – a closely watched measure of inflation that measures changes in the cost of everyday goods and services – rose 0.6% in August from the previous month, according to the data Bureau of Labor Statistics data Published Wednesday.
According to FactSet, August’s acceleration represents a 3.7% increase over 2022 – slightly more than the 3.6% increase expected by economists.
The latest figures represent a significant slowdown from last summer, when inflation hit its highest level in four decades at 9.1%. However, it is still well above the Fed’s 2 percent target and represents an acceleration from the previous two months. Inflation bottomed out at 3% in June and rose to 3.2% in July.
As Wall Street expected, rising gasoline prices were the main driver of August’s rise. They rose 10.6% last month, accounting for more than half of the increase, the data showed.
The national average for a gallon of gasoline was $3.85 on Wednesday AAA numbers – two cents less than a month ago and four cents less than a year ago, when oil prices hit a 10-month high.
“Pump prices appear to be defying all odds at the moment, despite the rise in oil prices,” said AAA spokesman Andrew Gross.
The energy index rose 5.6% in August after rising just 0.2% in July, the Bureau of Labor Statistics said.
Food prices rose 0.2% for the third straight month, while the meat, poultry, fish and eggs index rose 0.8% in August. The pork index rose 2.2%.
Meanwhile, the core CPI – which excludes volatile food and energy prices – rose 0.3% month-on-month, slightly higher than the 0.2% monthly gain in June and July.
Housing costs remained stubbornly high despite a cooling real estate market, likely due to mortgage rates that are at their highest since 2001 and forcing many homeowners in major U.S. cities to sell at a loss.
The shelter index was the biggest contributor to the core CPI rise, rising 0.3% month-on-month.
Airfares, personal care and new cars also contributed to the core CPI rise, as auto insurance indices also remained particularly strong.
Indexes for used cars and trucks and recreational activity fell last month, the report said.
Economists expect the slight increase in core inflation over the past three months to prompt the Fed to keep interest rates steady next week after central bankers’ much-anticipated two-day meeting on September 19-20.
Whether Fed officials will raise their federal funds rate above the current range — between 5.25% and 5.5% — in November and December remains uncertain.
At the Fed’s highly anticipated meeting last month in Jackson Hole, Wyoming, Fed Chairman Jerome Powell was hawkish in his tone about still stubbornly high inflation but remained vague about future rate hikes.
“We’re taking our cue from the stars in cloudy skies,” Jackson Lake Lodge’s Powell said, noting that Fed officials will “stay tuned until the job is done” and the Fed’s 2% inflation target is reached.
The central bank has worked to bring down stubbornly high inflation by raising interest rates by another 25 basis points to a 22-year high last month on hopes of an economic slowdown.
Although consumers continue to feel relief from the Fed’s aggressive tightening policies as inflation eased from its peak of 9.1% last June, the labor market has shown surprising resilience in recent months.
Employers have only recently begun slowing down hiring.
In August, the economy added 187,000 new jobs – the same number as July and the lowest number since the peak of COVID in 2020.
In June, 209,000 new jobs were added to the labor market, a slowdown from the massive 339,000 new jobs in May.
The US is currently enjoying a 31-month streak of monthly employment gains.