Lower energy prices a bright spot in August CPI data, inflation remains high

The Bureau of Labor Statistics released the monthly consumer price index on Tuesday and revealed that inflation increased again in August.

Economists predicted a decrease of 0.1% in headline inflation and expected core to increase by 3%. However, the new numbers for August show that the consumer price index rose 0.1% for the month and totals an 8.3% increase over the past year. Excluding food and energy costs, the CPI rose 0.6% from the previous month of July and 6.3% over the same period last year.

Food and shelter indexes make up almost a combined one-third of the weighting of the CPI. Food costs increased 0.7% from a year ago, with shelter costs rising 6.2%. Other increases were seen in medical care services, rising 0.8% in August and up 5.6% from last year, and new vehicle prices rose 0.8% for the month.

The market reacted to the news, with futures tied to the Dow Jones Industrial Average dropping nearly 350 points Tuesday.

Mike Loewengart, the Head of Model Portfolio Construction for Morgan Stanley’s Global Investment Office, stated, “Today’s CPI reading is a stark reminder of the long road we have until inflation is back down to earth. Wishful expectations that we are on a downward trajectory and the Fed will lay off the gas may have been a bit premature.”

Good news came from the energy sector, where prices fell 5% for the month, driven mainly by a decrease of 10.6% in the gasoline index. While this may be good news for consumers, who are seeing prices at the pump fall from more than $5 a gallon over the summer, increasing costs in food and shelter continue to pressure the public.

The Federal Reserve is set to meet next week to decide whether to raise interest rates another 0.75 percentage points. The news of rising inflation makes it more likely that the rate increase, which will be the fourth increase this year, will move forward and could even be as high as a full percentage point.

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