WASHINGTON — A surge in gasoline prices pushed inflation higher in August, but most other costs rose at a more modest pace, evidence that price increases overall continue to slow.
In a series of conflicting data released Wednesday, the Labor Ministry said the consumer price index rose 3.7 percent in August year-on-year, compared with 3.2 percent in July. However, excluding the volatile food and energy categories, so-called core prices rose 4.3 percent, down from 4.7 percent in July and the smallest increase in almost two years. That’s still far from the Federal Reserve’s 2% target.
Despite apparently divergent figures, the drop in the basic indicator suggests controlled inflation. The Federal Reserve closely monitors underlying prices because they are considered a better indicator of future inflation trends. Wednesday’s numbers also make it more likely that the Fed will not raise interest rates at its meeting next week.
Although high gas prices could also push inflation higher this month, most economists believe inflation will slowly decline through the end of the year.
On a monthly basis, consumer prices jumped 0.6 percent in August, the biggest increase in more than a year. Gas prices soared nearly 11% in August, but have since stabilized: According to AAA, the average price at the pump nationally was $3.84 on Tuesday, little change from a month ago.
Excluding food and energy, underlying prices rose just 0.3 percent in August compared to July, although this was up from 0.2 percent in the previous two months.
Energy costs rose 5.6% in August alone, the largest monthly increase since June 2022. Auto insurance prices also climbed, increasing 2.4% last month and by 19.1% compared to last year.
But prices fell or rose more slowly last month for many other products: Used car prices fell 1.2 percent, the third decline in a row, while hotel prices fell 3 percent. percent, also the third consecutive decline.
Federal Reserve officials are increasingly open to the idea that inflation is under control, even though Chairman Jerome Powell said last month that it was still “too high.”
But in his high-profile Jackson Hole speech, Powell said the Fed would proceed “cautiously” with any further rate hikes, which many economists saw as an opportunity for the Fed to avoid a rate increase during its meeting of September 19 and 20. When the Fed raises its policy rate, it typically increases the cost of mortgages, auto loans, and commercial borrowing.
The Fed has raised its benchmark interest rate 11 times over the past 12 meetings to around 5.4%, the highest level in 22 years. It increased the rate by a quarter point in July after leaving it unchanged in June.
Lorie Logan, president of the Dallas branch of the Federal Reserve, said last week that “another jump might be appropriate” at its next meeting, “but jumping does not imply stopping.”
Investors see only a 7% chance of a rate hike next week, according to CME’s FedWatch. But they forecast a 38 percent change for an increase at the Fed’s next meeting in November.
The European Central Bank is also considering raising its key interest rate at its next meeting on Thursday, although officials could also choose not to proceed with an increase. Europe’s economy is close to recession as it struggles with high inflation and rising borrowing costs.
The 20 countries that use the euro are expected to grow by just 0.8 percent this year, according to grim forecasts released Monday by the European Commission, the executive arm of the European Union. The German economy, the EU’s largest, is expected to contract by 0.4 percent. Inflation in the EU is higher than in the United States – it was 5.3 percent in July – although that is half of the peak of 10.6 percent in October.
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