US inflation is slowing again due to cheaper gas, according to the CPI. But the prices are still high

By Jeffry Bartach

The consumer price index only rose 0.1% in August, but inflation still rose 8.3% over the past year

The numbers: Last month’s tumble in gasoline prices generated a second straight low inflation, with the consumer price index rising just 0.1% in August. But inflation is still near a 40-year high and should prompt the Federal Reserve to raise US interest rates sharply again this month.

Economists polled by the Wall Street Journal had forecast a 0.1% drop in the CPI.

The slight increase in consumer prices last month brought the annual inflation rate down to 8.3%, from 8.5% in July and 9.1% in June. The June reading was the highest since 1981.

In a more worrying sign, the so-called core inflation rate, which omits food and energy, rose by 0.6%. Wall Street had forecast a 0.3% gain.

The increase in the base rate over the past year fell to 6.3% from 5.9% in the month, underscoring how entrenched inflation has become in the economy, at least temporarily. That’s more than three times the average annual rate for the decade before the pandemic.

The Fed views the base rate as a more accurate measure of future inflation trends.

Big picture: The Fed is expected to raise interest rates through the end of 2022 in an attempt to put out the worst inflationary fire in four decades, but it still has a long way to go to get back to benchmark levels. pre-pandemic consumer prices up less than 2% a year.

The central bank, however, risks a US recession if it goes too far. Higher rates reduce inflation by increasing the cost of borrowing for consumers and businesses and thus slowing the economy.

The central bank is poised for another oversized rate hike at its next meeting on Sept. 20-21 in Washington.

Market reaction: The Dow Jones Industrial Average and S&P 500 were expected to open higher on Tuesday and extend a recent winning streak. The 10-year bond jumped to 3.42% from 3.31% before the report.

-Jeffry Bartach

 

(END) Dow Jones Newswire

09-13-22 0838ET

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