Consumer prices rose slightly in August despite a steep decline in the cost of gasoline, according to inflation data released Tuesday by the Labor Department.
The consumer price index (CPI), a closely watched gauge of inflation, rose 0.1 percent in August after staying flat in July.
Economists expected the steady decline in gas prices throughout last month to lead to a 0.1 percent decline in monthly inflation, according to consensus estimates. But prices for food, electricity and a broad range of other products kept rising, leading to a slight increase in the monthly inflation rate.
While the annual inflation rate still fell to 8.3 percent in August from 8.5 percent in July, sharp increases in prices for food and household staples will likely be a cause of concern for the Federal Reserve and other policymakers.
“Today’s higher-than-expected CPI reading shows that we still have a long way to go before inflation returns to more normal levels,” said Scott Brave, lead consumer spending economist at Morning Consult, in a Tuesday analysis.
“While the recent decline in gas prices has provided a welcome reprieve for consumers, it represents just one part of the larger consumer basket, and prices for much of that basket continue to increase at rates that far exceed incomes.”
Food prices on the whole rose 0.8 percent in August, with prices for groceries and other store-bought food items up 0.7 percent. Prices for food have risen 11.4 percent over the past 12 months, the largest annual increase since May 1979.
Prices for goods and services other than food and energy, which economists call “core inflation,” rose 0.6 percent on the month after rising just 0.3 percent in July. The Fed sees rising core inflation as a better gauge of overall price growth in the U.S., because it removes volatile swings in food and energy prices.
“Gas prices are volatile and erratic. A jump in gas prices over the winter could take us right back to the higher inflation readings seen earlier this year,” wrote ZipRecruiter lead economist Sinem Buber in a Tuesday analysis.
“Since core inflation … is a better predictor of future inflation, this is concerning,” she continued.
The cost of shelter, which includes rents, rose 0.7 percent in August, and prices for medical care services rose 0.8 percent last month. Prices for new vehicles rose 0.8 percent, but used car and truck prices fell 0.1 percent.
The August jump brought the annual inflation rate minus food and energy up to 6.3 percent, more than three times the Fed’s target inflation rate of 2 percent. With inflation on the rise, economist expect the Fed to steam ahead with sharp interest rate increases and tamp down on calls to pullback their fight against rising prices.
The Fed’s monetary policy committee meets next on Sept. 20-21 and is almost certain to announce another 0.75 percentage point increase to the bank’s baseline interest rate range. It will be the third consecutive 75 basis point increase issued by the bank in three policy meetings since June unless the Fed abruptly changes course.
“After falling behind the curve and letting inflation get out of the box, there is little chance that the central bank will make a second major policy error in three years,” wrote Joe Brusuelas, chief economist at audit and tax firm RSM.
“Despite the obvious improvement in the inflation data and the probability that the pace of price increases will continue to ease, the Federal Reserve must demonstrate resolve and put forward another super-sized rate increase of 75 basis points at its meeting next week.”
The August inflation jump also ramps up pressure on President Biden and Democrats less than two months before they attempt to defend their majorities in the House and Senate during the midterm elections.
Democrats were hopeful falling gas prices would help soothe concerns about inflation and highlight other aspects of the economy that have fared well under their leadership. The U.S. has added more than 3 million jobs since the start of 2022 and the unemployment rate is close to pre-pandemic lows at 3.7 percent.
“It will take more time and resolve to bring inflation down, which is why we passed the Inflation Reduction Act to lower the cost of healthcare, prescription drugs and energy,” Biden said in a Tuesday statement, referring to his recently passed economic package.
“And my economic plan is showing that, as we bring prices down, we are creating good paying jobs and bringing manufacturing back to America,” he continued.
Republicans, however, blamed the steady increase in prices on Biden’s stewardship of the economy and passage of several major economic bills.
“I think the Fed has learned its lesson: loose monetary policy hurts every day Americans. But when will Democrats in Congress and the Biden administration realize their excessive government spending is making things a lot worse?,” wrote Sen. Pat Toomey (R-Pa.) on Twitter.
Updated at 10:43 a.m.