US consumer prices rose 0.4% in August, up from July’s 0.1% increase, as more expensive gasoline added pressure to household budgets ahead of the Federal Reserve’s next interest-rate decision.
The annual inflation rate held at 3.4%, according to figures released by the Bureau of Labor Statistics on September 11.
Gasoline prices jumped 3.9% during the month and accounted for more than a third of the overall increase. Shelter costs rose 0.3%. Grocery prices were unchanged, while food purchased away from home became 0.3% more expensive.
A faster month, a mixed annual picture
Core inflation, which excludes food and energy, also accelerated on a monthly basis, rising 0.3% after July’s 0.2% increase. Its annual rate nevertheless eased to 2.4% from 2.5%.
Gasoline cost 27.4% more than a year earlier. Medical care and motor vehicle insurance prices, however, fell during August. The monthly changes are seasonally adjusted, meaning they account for recurring patterns at particular times of year.
Monthly and annual inflation answer different questions. One measures the latest movement; the other compares prices with their level 12 months earlier. A stronger monthly increase can therefore coexist with a steady or falling annual rate.
Why household experiences differ
The Consumer Price Index tracks a broad basket of goods and services purchased by urban consumers. It is an average, so it cannot reproduce every household’s bills. Someone who drives long distances has a different exposure to rising fuel costs from someone who uses little gasoline.
The BLS explains that spending patterns determine how closely an individual’s experience matches the national figure. A household concentrating its spending in categories with faster price increases may feel considerably more pressure.
Nor does slower inflation mean earlier increases have disappeared. It means prices are rising more slowly. Actual price declines are a separate development.
Food provides another reason to be careful with comparisons. MBN recently reported that global food commodity prices rose in August. That international measure covers a different stage of the supply chain from prices paid by US shoppers.
What the Fed will assess
The Fed’s rate-setting committee meets on September 15 and 16. The inflation release is evidence for that decision, rather than a decision in itself.
The central bank says it examines trends over several months and considers whether price pressures are likely to persist. Core measures help it look past sharp swings in food and energy, although those expenses remain important to households.
Its 2% inflation objective is expressed in terms of the Personal Consumption Expenditures price index, a separate measure of household spending. The CPI is closely watched, but its annual rate is not the exact measure used for that target.
For businesses setting prices and households planning major purchases, the next useful signal will be the committee’s decision and updated economic projections, due with the September meeting.
