Inflation Sees Big Increase in August, But Will it Last?

September 11, 2020

Consumer prices saw solid gains last month, but economists remain divided over what this means in a post-COVID economy. Consumer prices were up 0.4% from July and1.3% from a year earlier. The core index, which strips out volatile categories like food and energy, increased 0.4% for the month and 1.7% annually.

This marks a substantial increase over the tepid inflation that has been seen recently, though it still falls below the Fed’s 2% target.

It is too soon to say if this is the beginning of an ongoing trend. Some worry that the unprecedented fiscal stimulus and accommodating monetary policy could cause a spike in inflation. The Fed, seemingly in anticipation of such an occurrence, recently changed policy framework and said it will allow inflation to run above 2% after such a long period of low inflation.

On the other hand, the current momentum may be hard to maintain if the broader economic recovery stalls. Unemployment remains high, and the chances of another stimulus bill are growing slimmer. If the economic recovery does slow, it is likely that inflation will slow as well.

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