Inflation: Consumer prices rise 8.3% over last year in August, tanking stocks and clinching rate hikes
Alexandra Semenova, Reporter – September 13, 2022
Inflation rose more than expected in August even as prices moderated from four-decade highs reached earlier this year.
The Consumer Price Index (CPI) in August reflected an 8.3% increase over last year and a 0.1% increase over the prior month, the Bureau of Labor Statistics reported Tuesday. Economists had expected prices to rise 8.1% over last year and fall 0.1% over last month, according to estimates from Bloomberg.
On a “core” basis, which strips out the volatile food and energy components of the report, prices rose 6.3% over last year and 0.6% over the prior month in August.
Expectations were for a 6.1% annual increase and 0.3% monthly increase in core CPI.https://flo.uri.sh/visualisation/6180194/embed?auto=1
The unexpected rise in Tuesday’s headline figure came despite a 5% drop in energy prices over the month, driven by 10.6% plunge in the gasoline index.
Inflationary pressures remained strong across other components of the report, with declining gas and energy prices offset by increases in the costs of shelter, food, and medical care — the largest of many contributors to the broad-based monthly increase, per the Bureau of Labor Statistics.
August’s CPI report sent stocks tumbling. Shortly after the release, Nasdaq futures were down as much as 1.8%, S&P 500 futures sank 1.2%, and Dow futures fell 0.9%
The reading also likely affirms that Federal Reserve officials will raise interest rates by 75 basis points at their policy-setting meeting Sept. 20-21.
“Today’s inflation data cements a third consecutive 0.75% increase in the Fed funds rate next week,” Principal Global Investors Chief Global Strategist Seema Shah said in a note.
“Headline inflation has peaked but, in a clear sign that the need to continue hiking rates is undiminished, core CPI is once again on the rise, confirming the very sticky nature of the US inflation problem,” Shah added, pointing out that 70% of the CPI basket logged an annual price rise of more than 4% month-on-month. “Until the Fed can tame that beast, there is simply no room for a discussion on pivots or pauses,” Shah said.
The higher-than-expected inflation print also comes after a round of more aggressive talk from central bank officials, notably Vice Chair Lael Brainard, who said last week: “While the moderation in monthly inflation is welcome, it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2 percent.”
“Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target,” Brainard added, “We are in this for as long as it takes to get inflation down.
Among individual components of the report, the food index increased 0.8% in August, the smallest monthly increase since December 2021. Meanwhile, the food at home index rose 0.7% during the month, with all six major grocery store food group indexes rising.
Housing prices continued their climb, with the cost of shelter recording its largest increase month-on-month increase — 0.7% — since January 1991. Over the last year, the shelter index jumped 6.2%, accounting for roughly 40% of the broader index increase in all items excluding food and energy.
The cost of medical care notably rose 0.7% in August after a 0.4% increase in July, with major medical care component indexes climbing across the board.
(This post is breaking. More to come.)