New inflation report: Everything besides gas is getting more expensive

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Inflation is slowing down for the wrong reasons: Everything besides gas is getting more expensive

By now this is a familiar story. Inflation is still high, with prices rising at their fastest rate in about 40 years, but the rise in prices is also notably slowing compared with fast increases earlier in the year.

Overall consumer prices rose 0.1 percent in August, according to the Bureau of Labor Statistics, and are up 8.3 percent in the past year. This report follows July’s, when there were literally no changes in prices from the previous month, which brought down the annual inflation rate to 8.5 percent. Economists surveyed by Bloomberg last week had forecast 8 percent annual inflation and no changes or a slight decrease in the monthly inflation figure.

Tuesday’s inflation report comes a week before the Federal Reserve’s September meeting, when many analysts expect a decision on whether to continue raising interest rates, likely by another three-quarters of a percent, in an effort to bring down inflation.

Senior Editor Leah Askarinam sat down with Grid’s Domestic Economics Reporter Matthew Zeitlin to ask what is going on with inflation numbers in this very odd economy.

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Grid: Before seeing today’s report, what did you expect good news for inflation to look like? And what would be a bad report?

MZ: A “good” report would show little to no rise in prices in August compared to July and some sign that price increases outside of energy were slowing down or even reversing. This report doesn’t quite get there — prices are still up — but it does seem like the large acceleration in price increases has become more mild.

Grid: Does today’s report make it more likely that this is part of a bigger trend — i.e., that the next inflation reports to come out in October and November will show inflation weakening?

MZ: There’s reason to believe that falling gas prices and energy prices will continue through the end of the year, which would effectively put a cap on any increase in overall inflation. But that’s only part of the overall picture. One worrying aspect of this month’s report was that “core” inflation — the increase in prices not counting food or energy — was 0.6 percent and is 6.3 percent over the past year. Some analysts had expected these prices to fall, and instead they went up.

Grid: Where are people feeling decreases most? And where are they still feeling the pinch of high inflation?

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MZ: In August, most items the Bureau of Labor Statistics measures actually increased in price, but things related to oil fell, as well as used cars, whose prices fell 0.1 percent. These had been major drivers of inflation since the economy began to reopen. Where there were price increases — and sizable ones — were in things like housing and food and even utility gas.

Grid: We’ve been hearing a lot about gas prices, which have been coming down for months now. What role did they play in this month’s inflation numbers? What about energy costs more generally?

MZ: Gas prices have been falling, and it’s played a major role in the slowdown in inflation we’ve seen recently, just as gas prices rising played a role in inflation getting extremely hot earlier this year. They’re down about 25 percent from their $5-per-gallon highs in June and have continued to fall so far this month, according to the Energy Information Administration.

Grid: So, is inflation on its way back down to 2 percent?

MZ: No, but it has slowed down. In June, annual inflation got as high as 9 percent, and in June and March, monthly inflation surpassed well over 1 percent. But for inflation to decrease substantially, it would require more than just an adjustment in energy prices that we’re seeing now. So-called core inflation would have to get much lower.

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What this means is that inflation in goods and services besides food and energy — whose prices are very closely linked to the global trade in commodities like oil and grain and are much more volatile — would have to come down. This measure of inflation hasn’t gotten close to 8 percent. It’s right now running at 6.3 percent, which is an increase from last month’s 5.6 percent annual rate. Economists surveyed by Bloomberg expected the core measure to come in at 6.1 percent. This is still well north of the Fed’s 2 percent target, which is actually targeting a version of this “core” price index.

Grid: One place we’ve seen the Fed’s rate hikes show up has been in the housing market, where mortgage rates are near their highest levels in years. Is there any movement in home prices? Is housing getting any cheaper?

MZ: Not as measured by the Bureau of Labor Statistics, which reported housing costs rising by 0.6 percent last month and 6.1 percent over the year. There is some evidence that home sale prices are heading down in markets that were especially overheated following the covid-19 pandemic, but this is only a small portion of the overall mix of what people pay for housing.

Thanks to Lillian Barkley for copy editing this article.

  • Matthew Zeitlin
    Matthew Zeitlin

    Domestic Economics Reporter

    Matthew Zeitlin is an economics reporter at Grid focused on the domestic impact of major stories such as coronavirus, the supply chain and economic volatility.

TOPICS

Inflation