Gas Prices Drive Latest Inflation Increase

Labor Dept.'s new report is a mixed bag, with signs of continued cooling in consumer prices
By Newser Editors and Wire Services
Posted Sep 13, 2023 9:03 AM CDT
Gas Prices Drive Latest Inflation Increase
A motorist fills up at a Shell station on July 5 in Englewood, Colorado.   (AP Photo/David Zalubowski)

A spike in gas prices pushed up inflation in August, yet most other costs rose at a more modest pace, evidence that consumer price increases overall are still cooling. In a set of conflicting data on Wednesday, the Labor Department said the consumer price index rose 3.7% in August from a year ago, up from a 3.2% annual pace in July, per the AP. Yet excluding the volatile food and energy categories, so-called core prices rose 4.3%, down from 4.7% in July and the smallest increase in nearly two years. That remains far from the Federal Reserve's 2% target.

Gas prices rose nearly 11% in August, though they've since leveled off: According to AAA, the average nationwide price at the pump was $3.84 on Tuesday, little changed from a month ago. Despite the seemingly divergent figures, the decline in the core measure could add to optimism that inflation is coming under control. The Federal Reserve closely tracks core prices because they're seen as a better indicator of future inflation trends. Wednesday's figures also make it more likely the Fed will skip an interest rate hike at its meeting next week.

While more expensive gas could elevate inflation this month as well, most economists forecast that inflation will decline through the end of the year as the cost of new and used cars, rents, and furniture decline. "The longer-run trend is coming down," said Alan Detmeister, an economist at UBS and former staff economist at the Fed. "There is month-to-month noise ... But we're on the right track." Cooling inflation would also bolster hopes that the economy could actually experience a rare "soft landing," in which growth and hiring slow enough to bring down price growth but not so much as to result in a deep recession.

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Federal Reserve officials are becoming more open to the idea that inflation is coming under control, though chair Jerome Powell said last month it was still "too high." But in his high-profile speech in Jackson Hole, Wyoming, Powell said that the Fed would proceed "carefully" with any further rate hikes, which many economists saw as an opening for the Fed to skip a rate increase at its September 19-20 meeting. The Fed has lifted its benchmark interest rate 11 times in the past 12 meetings to about 5.4%, the highest level in 22 years. It increased the rate a quarter-point in July after leaving it unchanged in June. Investors see only a 7% chance of a rate hike next week, according to CME's FedWatch. But they've priced in a 38% change for an increase at the Fed's subsequent meeting in November. (More inflation stories.)

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