The Labor Department’s latest update on the Consumer Price Index (CPI) on Tuesday showed consumer inflation rose in August, as prices for most goods continued to climb. Headline inflation rose 0.1% in August, following an unchanged reading in July as costs for food, shelter, and medical expenses rose, while energy costs declined. Prices were up 8.3% from a year ago, decelerating from an 8.5% rate in July, but still near multi-decade highs and above economists' expectations of 8.1%.
Core inflation, which excludes more volatile food and energy costs, rose 0.6% in August, up from July’s 0.3% gain. On an annual basis, the rate of core inflation accelerated to 6.3%, up from 5.9%.
- The CPI rose 0.1% in August, after being unchanged in July. Prices were up 8.3% year-over-year, down from 8.5% in July, but above analysts’ expectations of 8.1%.
- Core inflation rose 0.6% in August, and was up 6.3% year-over-year, accelerating from 5.9%.
- Gas prices declined 10.6% in August, while costs for food and other price categories continued to accelerate, with food inflation rising at the fastest annual rate since 1979.
- A hotter-than-expected inflation reading will likely strengthen the Fed’s case for more aggressive interest rate hikes.
Energy Costs Continue to Fall
Energy prices continued to decline, falling 5% in August. Gasoline prices fell 10.6%, driven lower by falling prices for crude oil and other energy commodities. Gas prices have fallen steeply from their peak levels in mid-June, with the national average price for a gallon of unleaded gasoline declining to $3.70, down from a peak of $5.02 on June 14, as reported by AAA.
Food Prices Surge
However, costs continued to increase for other products, particularly food. Costs for food continued to accelerate, rising at an 11.4% annual rate—up from 10.9% in July and marking the highest rate of food inflation since 1979. Inflation for “food at home,” a category that includes groceries and other consumer staples, rose 13.5% year-over-year. By contrast, food away from home, which tracks prices at restaurants and other dining establishments, rose at an 8% annual rate.
Implications for Monetary Policy
The report showing prices continue to rise will likely strengthen the Federal Reserve’s case for continued interest rate hikes. The Federal Open Market Committee (FOMC) will conduct its next monetary policy meeting on September 20-21, with markets increasingly pricing in a rate hike of 75 basis points (bps).