FILE – A driver delivers 8,500 gallons of gasoline to an ARCO gas station in Riverside, Calif., Saturday, May 28, 2022. (AP Photo/Damian Dovarganes, File)
WASHINGTON (AP) — U.S. inflation slowed for a second straight month on a sharp drop in gasoline prices, but excluding energy, most other items became more expensive in August, a sign that inflation remains a heavy burden for American households.
Consumer prices jumped 8.3% in August from a year earlier, the government said on Tuesday, following an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.
But excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August – up sharply from 0.3% the previous month and dashing hopes , for now, that core prices may start to moderate. In the 12 months to August, core prices jumped 6.3% from July’s 5.9%. Rents, medical care services and new cars all rose in price in August.
Core prices generally provide a clearer reading of where costs are headed than headline inflation. Stock index futures fell on worse-than-expected core numbers as many investors feared the Federal Reserve could now raise interest rates even faster in its bid to rein in inflation.
Inflation remains far higher than many Americans have ever seen and keeps the pressure on the Fed. The central bank is expected to announce another big hike in its benchmark interest rate next week, which will drive up costs for many personal and business loans.
Inflation has increased families’ grocery bills, rents and utility costs, among other expenses, inflicting hardship on many households and adding to the sluggish economy despite strong job growth and a low unemployment rate. Grocery products continue to rise rapidly, jumping 0.7% from July to August. Over the past year, they have climbed 13.5%, the biggest 12-month increase since 1979.
Even if inflation peaks, economists expect it will take two years or more to fall back to near the Fed’s 2% annual target. The cost of rental apartments and other services, such as health care, are expected to continue to rise in the coming months.
Republicans have sought to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s $1.9 trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they also say tangled supply chains, Russia’s invasion of Ukraine and widespread shortages of items like semiconductors have been key factors. of the surge in inflation.
Still, signs that inflation may have peaked — or soon will — could bolster Democrats’ midterm election prospects and may have already contributed to slightly higher public approval ratings for Biden. In his speeches, Biden has generally stopped referring to the impact of high prices on family budgets. Instead, he pointed to his administration’s recent legislative achievements, including a law signed into law last month aimed at reducing pharmaceutical prices and tackling climate change.
Nationally, the average cost of a gallon of gas has fallen to $3.71 from just over $5 in mid-June. Many companies are also reporting signs that supply backlogs and inflation are beginning to subside.
General Motors said pandemic disruptions to overseas semiconductor production, which reduced auto production, have dissipated significantly and overall supply chain disruptions have improved by about 80% compared to the worst days of the pandemic.
Over the past year, prices for meat, milk, and fruits and vegetables have soared in double digits. But executives at Kroger, the nation’s largest grocery chain, said lower prices for agricultural commodities like wheat and corn could slow rising food costs.
Next week, most Fed watchers expect the central bank to announce a third straight three-quarter point hike, in a range of 3% to 3.25%. Rapid Fed rate increases – the fastest since the early 1980s – typically drive up the costs of mortgages, auto loans and business loans, in an effort to slow growth and reduce the inflation. The average 30-year mortgage rate jumped to nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.
Chairman Jerome Powell said the Fed will need to see several months of low inflation rates suggesting price increases fall back toward its 2% target before it can suspend its rate hikes.
Wages continue to rise at a healthy pace – before adjusting to inflation – which has increased demand for apartments as more and more people move on their own. A shortage of available housing has also forced more people to continue renting, intensifying competition for apartments.
Rising rents and more expensive services, such as medical care, are also keeping inflation high.