Lower gas costs slowed U.S. inflation for a second straight month in August, but most other prices across the economy kept rising — evidence that inflation remains a heavy burden for American households.
Consumer prices rose 8.3% from a year earlier and 0.1% from July. But the jump in “core” prices, which exclude volatile food and energy costs, was especially worrisome. It outpaced expectations and ignited fear that the Federal Reserve will boost interest rates more aggressively and raise the risk of a recession.
In the New York metropolitan region, which includes Long Island, consumer prices increased 6.6% in August from a year earlier. On a monthly basis, prices advanced 0.2% compared with July. That followed a 0.1% decline in June.
Bruce Bergman, an economist at the Bureau of Labor Statistics, said that the regional numbers differ from the national data in part because housing expenditures carry a higher weight in the New York area.
If housing were stripped out from both the national and metro area rates, the national inflation rate would be 9.3%, while the New York region would post an overall August inflation rate of 8.9%, he said.
Nationally, core prices surged 6.3% for the year ending in August and 0.6% from July to August, the government said Tuesday. The increases were fueled by high rents and rising prices for medical care and new cars. Furniture and sports gear, among many other items, also got costlier, suggesting that businesses are still raising prices in response to robust consumer demand.
The breadth of the price increases dashed hopes, at least for now, that core inflation would moderate. Economists tend to track core prices for a clearer read on where inflation is headed.
Stock prices sank and bond yields jumped on the worse-than-expected core figures, with many investors fearful that the Fed will tighten credit even more vigorously in its drive to curb inflation. The Dow Jones industrial average tumbled more than 1,200 points, or nearly 4%.
Further Fed rate hikes could weaken growth so much as to push the economy into a recession. Some economists now expect the Fed to raise its benchmark short-term rate, currently in a range of 2.25% to 2.5%, to 4.5% or higher by early next year. That would make it even harder for the central bank to meet its goal of achieving a “soft landing," whereby it would tame inflation without causing a recession.
“This was a disappointing report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. "It raises the risk of higher interest rates and a hard landing for the economy.”
John A. Rizzo, an economist and a professor at Stony Brook University, said that the equity markets “overreacted” to the inflation numbers, though the coming months remain uncertain.
“Between today and yesterday, nothing’s changed in the economy,” he said.
But upcoming economic reports will dictate whether inflation moderates and consumer confidence returns or whether consumers will have to tighten their belts, he said.
“We’ve seen a leveling off [in inflation],” Rizzo said. “What we need to see is a downward trend.”
Fed chair Jerome Powell is expected to announce another big increase in the Fed's key rate next week, which will lead to higher costs for consumer and business loans.
Inflation is higher than many Americans have ever experienced, escalating families’ grocery bills, rents and utility costs, among other expenses. It has deepened gloom about the economy despite strong job growth and low unemployment.
Republicans have sought to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s $1.9 trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they say snarled supply chains, sharp pay increases and Russia’s invasion of Ukraine have also been key factors in the inflation surge.
At the same time, the drop in gas prices — for consumers, perhaps the most visible barometer of inflation — could bolster Democrats’ prospects in the midterm elections. It may already have contributed to slightly higher public approval ratings for Biden.
In a statement Tuesday, the president said, “Overall, prices have been essentially flat in our country these last two months. That is welcome news for American families, with more work still to do."
In his speeches, Biden has generally stopped referring to the impact of inflation on family budgets. He has instead highlighted his administration’s recent legislative accomplishments, including a law enacted last month that’s intended to reduce pharmaceutical prices and fight climate change.
Nationally, the average cost of a gallon of gas has dropped to $3.71, down from just above $5 in mid-June. The average on Long Island Tuesday was $3.59, according to AAA. But grocery prices have continued to rise rapidly, jumping 0.7% from July to August. In the past year, they have soared 13.5% — the biggest 12-month increase since 1979.
With Ken Schachter