Baltimore Sun

US inflation still too high despite August slowdown

Lower gas costs ease burden on consumers, but most other prices keep rising

- By Christophe­r Rugaber

WASHINGTON — Lower gas costs slowed U.S. inflation for a second consecutiv­e month in August, but most other prices across the economy kept rising — evidence that inflation remains a heavy burden for American households.

Consumer prices surged 8.3% last month compared with a year earlier, the government said Tuesday, down from an 8.5% increase in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.

But excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August — up sharply from 0.3% the previous month and dashing hopes, for now, that core prices would moderate. And in the year ending in August, core prices leapt 6.3%, up from 5.9% in July.

Core prices typically provide a clearer read on where costs are headed than overall inflation. Rents, medical care services and new cars all grew more expensive last month.

Stock prices tumbled and bond yields rose on the worse-than-expected core figures, with many investors fearful that the Federal Reserve will turn even more aggressive in its drive to curb inflation.

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 shortterm 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.”

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.

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 that 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.

Nationally, the average cost of a gallon of gas has dropped to $3.71, down from just above $5 in mid-June. But grocery prices jumped 0.7% from July to August. In the past year, they have soared 13.5% — the biggest 12-month increase since 1979.

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