Surging prices breach US inflation estimation, 0.1% up in August

So-called core CPI, which strips out the more volatile food and energy components, advanced 0.6% from July and 6.3% from a year ago. All measures came in above forecasts.

US inflation was firmer than expected in August, likely keeping the Federal Reserve on track for a third-straight 75 basis-point interest-rate hike. The consumer price index increased 0.1% from July, after no change in the prior month, Labour Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration.

Federal Reserve Board Chairman Jerome Powell said last week that the central bank will act “forthrightly” to achieve price stability, and some policy makers voiced support for another historically large rate hike. (AFP)

So-called core CPI, which strips out the more volatile food and energy components, advanced 0.6% from July and 6.3% from a year ago. All measures came in above forecasts. Shelter, food and medical care were among the largest contributors to price growth.

The acceleration in inflation points to a stubbornly high cost of living for Americans, despite some relief at the gas pump. Price pressures are still historically elevated and widespread, pointing to a long road ahead toward the Fed’s inflation target.

Chair Jerome Powell said last week that the central bank will act “forthrightly” to achieve price stability, and some policy makers voiced support for another historically large rate hike. Officials have said their decision next week will be based on the “totality” of the economic data they have on hand, which also illustrates a strong labour market and weakening consumer spending.

Following the data, Treasury yields surged, while S&P 500 index futures slid and the dollar rose. Traders boosted bets that the Fed will raise interest rates by three-quarters of a percentage point, now seeing such an outcome as locked in.

Before the report, several Wall Street forecasters including Evercore ISI and Deutsche Bank AG lifted their projections to call for a 75 basis-point move.

Persistently high inflation has dragged down President Joe Biden’s approval ratings and threatened Democrats’ chances of retaining their thin congressional majorities in November’s midterm elections. Biden, in a White House ceremony later Tuesday, plans to argue that he and his fellow Democrats have helped steer the economy back to firmer footing as they tout a sweeping new climate, energy and health care law dubbed the “Inflation Reduction Act.”

Food and Gas

Food costs increased 11.4% from a year ago, the most since 1979. Electricity prices rose 15.8% from 2021, the most since 1981.

Gasoline prices, meanwhile, fell 10.6% in August, the biggest monthly drop in more than two years.

Shelter costs -- which are the biggest services’ component and make up about a third of the overall CPI index -- continue to rise. Overall shelter costs increased 0.7% from July and 6.2% from a year ago, both the most since the early 1990s.