Inflation Continued to Climb in August Despite Falling Gas Prices

September 13, 2022

Inflation unexpectedly rose in August as higher shelter and food costs offset a drop in gas prices, according to the Bureau of Labor Statistics.

The consumer price index (CPI), which tracks a basket of common goods and services, increased 0.1% for the month and 8.3% over the past year. The so-called “core” CPI, which excludes volatile food and energy costs, rose 0.6% from the previous month and 6.3% from the same month in 2021.

Economists had been expecting a slowdown, forecasting headline inflation to fall 0.1% and core to increase 0.3%, according to Dow Jones estimates. The respective year-over-year forecasts were for 8% and 6% increases.

The expectations of slowing inflation were fueled by falling gas prices, which have declined steadily since peaking earlier in the summer. Energy prices did fall 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases in food and shelter costs.

Shelter costs, which account for roughly one-third of the weighting in the CPI, jumped 0.7% and are up 6.2% from a year ago, and the food index increased 0.8% from the year before. Bread prices have jumped 16.2% in the last year while egg prices have surged 39.8%.

The markets had been widely expecting the Federal Reserve to raise interest rates by 75 basis points at its meeting next week, but following the CPI release, traders have taken the possibility of a 50 basis point move completely off the table and are now pricing in a 10% chance of a full 100 basis point hike, according to data from the CME Group.

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