Inflation Accelerated in August Amid Higher Gas Prices

September 14, 2023

Consumer prices climbed in August at the fastest pace in more than a year amid a sharp increase in energy costs, highlighting inflation’s choppy decline and the uncertainty around the Federal Reserve.

The consumer price index (CPI), a key inflation gauge, increased 0.6% in August from the month prior and was up 3.7% from a year ago according to the Labor Department. That was an acceleration from July’s 0.2% monthly increase and 3.2% annual gain. The numbers are largely in line with Dow Jones forecasters, who had estimated a 0.6% and 3.6% increase, respectively.

More than half of the monthly increase is attributable to higher gasoline prices. The so-called “core” CPI, which excludes volatile components like food and energy, was up a relatively subdued 0.3% in August from the month prior.

The gap between the “core” and headline CPI is due largely to higher energy prices, which jumped 5.6% for the month, an increase that included a 10.6% surge in gasoline prices. The mild “core” inflation reading is likely to keep the Federal Reserve on course to pause interest rates again at their meeting later this month, but gives little indication of whether they will raise rates again before the end of the year. 

Inflation has been cooling in recent months, but surging energy costs could continue to feed inflationary pressures. Gasoline prices are likely to stay elevated following Saudi Arabia’s decision to extend production cuts through the end of the year, and higher prices at the pump could spur broader inflation. Higher energy costs can feed into price increases for a variety of goods and services like transportation, airfare, and meal delivery services. More than that, however, is the impact it has on consumers. Prices at the pump are one of the biggest determining factors for how consumers view the economy. Paying more for gasoline can drive consumer expectations of inflation, causing them to push for higher wages, which in turn drives inflation.

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