Prices in the US surged again in August even as the overall pace of inflation slowed for the second consecutive month as energy costs fell.
The Consumer Price Index (CPI), the Bureau of Labor Statistics’ monthly cost of living survey, found prices were 8.3% higher last month compared with August last year. The figure was down from an annual rate of 8.5% recorded in July and 9.1% in June, the highest rate in four decades.
But despite the declining headline rate, the details of the report showed prices rising across a wide range of goods and services and led to a sharp selloff on Wall Street.
Falling gas prices were the major contributor to the overall drop. Gas prices have fallen for 13 weeks in a row. Nationally, a gallon of gas currently costs an average of $3.71, according to AAA, down from a high of over $5 in June.
Used and new car prices – once a major driver of inflation – fell, as did airfares.
But the prices of other goods and services are still rising.
Prices overall rose slightly over the month, 0.1% higher than July. And after stripping out energy and food costs prices rose 6.3% over the last 12 months, up from 6.1% in July. The increases were broad-based with prices for shelter, food and medical care rising fastest.
The food index increased 11.4% over the last year, the largest 12-month increase since the period ending May 1979.
While the headline rate of inflation has slowed, it still leaves inflation at a rate unseen in four decades and adds to the headwinds facing the Biden administration as midterm elections approach.
The news comes as the Federal Reserve weighs another sharp increase in interest rates as it struggles to bring price rises under control. Anticipating another rise, investors sold off stocks as the news broke with the Dow Jones index dropping over 800 points (2.7%).
Many parts of the US economy remain strong, most notably the jobs market and household spending. The Fed chair, Jerome Powell, last month warned that the central bank would use its tools “forcefully” to bring prices down and said there would be pain ahead, a signal that he expects the Fed’s policy to slow job gains and spending.
The Fed is raising rates at a pace unseen since the 1980s. It raised its benchmark interest rate by 75 basis points in July, the second such rise in two months, and is expected to announce a similarly sharp rise in rates when it meets again next week.
Last week Powell made clear that taming inflation remained the Fed’s top priority. “History cautions strongly against prematurely loosening policy,” Powell said during a discussion at the Cato Institute, a libertarian thinktank. “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”