CPI Live: Inflation rises for second straight month in August on higher gas costs

Inflation accelerated for a second month in August on a spike in gasoline prices and an underlying measure of household expenses rose more than anticipated, highlighting that the Federal Reserve's battle to tame consumer prices may not be over.

Goods such as used cars and furniture kept drifting down in price, partly offsetting a climb in rent, travel and other services.

Inflation data this week

Consumer prices overall rose 3.7% from a year earlier, up from 3.2% in July, according to the Labor Department’s consumer price index. That’s the second straight bump after 12 consecutive declines in annual inflation.

On a monthly basis, prices increased 0.6%. That followed a 0.2% rise in July and marked the biggest jump in more than a year. The chief culprit was a surge in gas costs.

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What is core inflation?

Core prices, which exclude volatile food and energy items and which the Fed watches more closely, are still elevated and rose 0.3%. Economists expected a repeat of the prior month's 0.2% advance. The rise still moderated the annual increase to 4.3%, down from 4.7% in July and the smallest gain since September 2021.

"The inflation genie is not yet back in the bottle," says Jason Schenker, president of Prestige Economics.

Will inflation go down?

Annual inflation has slowed notably after hitting a 40-year high of 9.1% in June 2022. But lowering it the rest of the way to the Fed’s 2% target is expected to pose a thornier challenge. While goods prices have fallen as pandemic-related supply chain bottlenecks have dissipated, the cost of services such as car repairs and recreation have leaped, chiefly because of increasing employee wages.

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Will the Fed raise rates again in September?

As a result, Barclays expects the Fed to raise its key interest rate once more this year, by a quarter percentage point, after lifting it by 5.25 points in 16 months. That marks its most aggressive inflation-fighting campaign in four decades.

Kathy Bostjancic, chief economist of Nationwide, says Wednesday's report isn't enough to convince the Fed to veer from its plan to hold rates steady at a meeting next week but it could help persuade officials to hike again in November, depending on how inflation and the job market evolve.

Others say the Fed is done. Forecasters at Pantheon Macroeconomics and Capital Economics believe softer rent increases and a slowing economy and job market in coming months will lead the Fed to stand pat the rest of the year.

Consumers, meanwhile, are still struggling with high prices. Although wage growth recently started outpacing inflation, many Americans say they aren’t feeling the benefits.

Skip the steak

Rick Kiphut, of Atoka, Tennessee, says weekly groceries for himself, his wife and two teenage daughters cost more than $200, up from $150 a couple of years ago. Instead of eating steak two or three times a month, they’ve cut back to monthly.

Prices of some items, such as eggs, have come off their peak. But, he says, “They seem to have landed at a higher spot.”

And dinner at a casual restaurant costs more than $100, up from $50 to $70. So the family’s twice-weekly ritual has been sliced in half.

And with fuel and hotel costs elevated, the family decided to forgo their typical summer vacation to Florida beaches or a local campground.

Although Kiphut, a fire chief, says his 3% annual raise may finally be matching inflation, “I never caught up to that 9%” rise in prices last summer.

Will gas prices keep getting higher?

Gasoline prices rose 10.6% in August, though they’re down 3.3% from a year earlier. Pump prices are well below their $5 peak a year ago but are expected to move higher this year on a more positive global economic outlook and OPEC oil production cutbacks.

Are food prices going to go down in 2023?

Grocery prices rose more modestly, edging up 0.3% and lowering the yearly increase to 3%. The cost of commodities such as wheat and corn generally have fallen because of easing global demand, though drought and wildfires in the western U.S. recently have crimped supplies and nudged some prices higher. .

Last month, the price of breakfast cereal fell 1.1%, bread slipped 0.8% and eggs tumbled another 2.5%. That’s the sixth straight monthly decline for eggs after a spate of sharp bird flu-related increases, and costs are now down 18.2% over the past year.

But some proteins moved higher. Bacon rose 4%; chicken, 1.3%; and fish and seafood, 0.9%.

Will rent go down in 2023?

Rent, which has been the biggest inflation driver this year, accelerated, rising 0.5% in August though that’s still down from a flurry of stronger increases. Annually, the increase eased to 7.3%. Economists expect rent increases to pull back, based on new leases, but that shift has been slow to filter through to existing leases.

Some other service prices also climbed higher. Airfares surged 4.9% on higher jet fuel costs after a string of declines. Hospital services rose 0.7%; car repairs, 1.1%; and auto insurance, 2.4%. Broadly, a core index of service prices that's tied closely to wage growth and that the Fed is watching closely accelerated, rising 0.5%, according to High Frequency Economics.

More encouraging: Used car prices and furniture both dropped 1.2% and hotel rates declined 3%.

WANT TO KNOW MORE? WE'VE GOT YOU.

USA TODAY explores the questions you and others ask about inflation and how it affects your life, from "What is inflation?" to "What happens during a recession?" For more answers to your questions about today's report and other economic trends, keep reading:

CPI Calculator

The Department of Labor has a tool that enables consumers to find shifts in their buying power.   

COLA 2024

Social Security recipients can expect their cost of living adjustment (COLA) to jump  3.2% next year according to a new forecast made in the wake of Wednesday’s report showing inflation rose last month.  That’s up from the previous estimate of 3%.

While inflation has ticked up each of the last two months and is higher than the Federal Reserve’s target of 2%, the rate of price increases has generally been dipping over the last year which means the benefits adjustment is slight, according to projections from The Senior Citizens League, a nonprofit seniors group. 

Still, the updated increase would be higher than the 2.6% average seen over the past two decades though much lower than the 40-year COLA high of  8.7% this year.  

“The harsh reality is that the amount that the COLAs increase benefits in most years is meager at best,” said Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League.   

Is a recession still coming? 

There’s a good chance not, but the odds are greater in some parts of the country than others. 

The likelihood of the U.S. experiencing a recession by the middle of next year has significantly lessened recently as economic and job growth have remained strong, and inflation has eased.

But some regions of the country are more vulnerable to a downturn than others. 

The West and South saw the biggest price surges during the COVID-19 pandemic, particularly when it came to buying a home and broader inflation, and are now most likely to slide into a downturn, according to Moody’s Analytics.

The pandemic accelerated existing trends that already saw people moving to those regions to take advantage of their mild climates and lower costs of living. When the opportunity to work remotely increased during the health crisis, more picked up and moved to less populated communities. 

“There’s more risk in places that have grown rapidly,” says Moody’s regional economist Adam Kamins. “There’s a little more risk of a bubble forming.” 

When is the next Fed meeting 2023? 

The Fed will meet next on Sept. 19 and 20th. 

How does raising rates lower inflation?

The federal funds rate is what banks pay each other for overnight loans. If that rate rises, banks typically pass along that extra cost, meaning it becomes more expensive to borrow as rates increase on services and items ranging from credit cards to home equity lines. That’s why the funds rate is the primary tool used by the Federal Reserve to try and put the brakes on inflation.  

When it costs more to borrow, businesses and consumers are less inclined to do it, and that means an overheated economy can cool and price increases may slow. 

How many times has the Fed raised rates?

The Fed raised its key rate at 10 meetings in a row starting in March 2022, the most aggressive run of rate hikes in four decades. It paused that streak in June, leaving the benchmark federal funds rate where it stood, but implemented another increase the following month, lifting the rate by a quarter point to a range of 5.25% to 5.5%. 

What is the Fed meeting schedule?

The Fed’s meeting schedule is: 

◾ Sept. 19-20

◾ Oct. 31/Nov. 1

◾ Dec. 12-13

What’s the PCE Price Index?

The personal consumption expenditures (PCE) price index is a gauge of inflation that is also closely monitored by the Federal Reserve. 

It rose slightly in July, with consumer prices ticking up 3.3% as compared to the previous year, but far below the four-decade high of 7% in June 2022, according to the Commerce Department. 

On a monthly basis, prices rose 0.2%, in line with June’s increase,  according to July’s uptick, however, was sharper before the figures were rounded.

Is inflation going down?

Though the pace of inflation has sped up in the last two months, it’s still far below the four decade high of 9.1% in June 2022. 

What's the difference between CPI and PPI?

CPI measures inflation as experienced by consumers going about their day-to-day lives, while the PPI, or producer price index, measures the average changes over time in the sale prices received by domestic producers for their output. PPI, often referred to as wholesale price inflation, is gleaned during an  earlier phase of the production and marketing cycle and typically impacts CPI. 

Core inflation, which assesses inflation but leaves out the prices of food and energy which are more volatile is the other key price metric.  

U.S. inflation rate by month

The inflation rate has plunged, tumbling by more than half from its peak of 9.1% in June, 2022. But it’s still above the 2% target preferred by the Federal Reserve. Here's where the U.S. inflation rate has stood each month since May 2022:

• May 2022: 8.6%
• June 2022: 9.1%
• July 2022: 8.5%
• Aug 2022: 8.3%
• Sept 2022: 8.2%
• Oct 2022: 7.7%
• Nov 2022: 7.1%
• Dec 2022: 6.5%
• Jan 2023: 6.4%
• Feb 2023: 6.0%
• Mar 2023: 5.0&
• Apr 2023: 4.9%
• May 2023: 4.0%
• June 2023: 3.0%
• July 2023: 3.2%
• August 2023: 3.7%

What is inflation?

Inflation is a "generalized rise in prices," according to Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank based in Washington D.C. The cost of items and services ranging from health care, to gas, to groceries can shift depending on inflation.  

What is the difference between CPI and core CPI?

Core prices leave out volatile food and energy items and therefore are a more accurate reflection of longer-term trends.

S&P 500

Stocks edged higher at midday following the CPI report. The S&P 500 stock index, used in many mutual funds, nudged up 0.28% while the Dow gained 0.13%. The Nasdaq nosed up 0.48%.

What is the Inflation Reduction Act?

The Inflation Reduction Act, passed by Congress and signed into law by President Biden last summer, impacts aspects of the economy ranging from the environment, to corporate taxes to the price of insulin. 

Some of its key changes are: capping insulin prices at $35 a month for Medicare recipients; implementing a 15% minimum corporate tax and 1% fee on stock buybacks; reducing the costs of heating and lighting your home; and shrinking carbon emissions by 40% in the next seven years through a combination of tax incentives and clean energy investments. 

Why is CPI important?

The Federal Reserve watches two key measures of the economy, price stability and maximum employment, which are its main considerations in interest-rate decisions.  The CPI gives the Fed guidance to assess whether prices are “stable.’’

Georgia Gov. Brian Kemp declares state of emergency over inflation concerns

Inflation remains a heated political and pocketbook issue for politicians and voters. In response to high gas prices,  Georgia's governor on Tuesday declared a state of emergency, temporarily suspending the state’s excise tax on motor and locomotive fuel to help struggling residents. 

"From runaway federal spending to policies that hamstring domestic energy production, all Bidenomics has done is take more money out of the pockets of the middle class,” Kemp said in a statement. “While high prices continue to hit family budgets, hardworking Georgians deserve real relief and that's why I signed an executive order today to deliver it directly to them at the pump.''

When does CPI come out?

The Consumer Price Index (CPI) will be released by the Department of Labor at 8:30 AM ET Wednesday.

What is CPI?

The Consumer Price Index (CPI) looks at the average change in prices for particular products and services during a period of time, according to the Bureau of Labor Services. 

Current inflation rate

In August, the government reported that prices rose 3.2% in July compared with a year earlier. The slight increase was largely due to a technicality in the way annual price hikes are measured. Still, it ended a 12-month stretch in which the rate of consumer price increases steadily declined.  

What is August CPI forecast? 

The August inflation rate is expected to be between 3.6% and 3.7%, up from the 3.2% rate in July. 

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