Falling prices for gas and cheaper used cars slowed inflation, though consumer prices still rose 8.3% in Aug. Prices rose 8.5% in July and at a 9.1% peak in June.
WASHINGTON (AP) – Sharply lower prices for gas and cheaper used cars slowed U.S. inflation in August for a second straight month, though many other items rose in price, indicating that inflation remains a heavy burden for American households.
Consumer prices surged 8.3% in August compared with a year earlier, the government said Tuesday. Though still painfully high, that was down from an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.
Excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August, higher than many economists had expected and a sign of inflation’s persistence.
Despite the signs of moderating price increases, inflation remains far higher than many Americans have ever experienced and is keeping pressure on the Federal Reserve, the agency tasked with keeping prices stable. The Fed is expected to announce another big increase in its benchmark interest rate next week, which will lead to higher costs for many consumer and business loans.
Inflation has escalated families’ grocery bills, rents and utility costs, among other expenses, inflicting hardships on many households and deepening gloom about the economy despite strong job growth and low unemployment.
Even if inflation peaks, economists expect it could take two years or more to fall back to something close to the Fed’s annual 2% target. The cost of rental apartments and other services, such as health care, are likely to keep rising in the months ahead.
The average cost of a gallon of gas fell to $3.72 nationwide on Monday, down from just above $5 in mid-June. And many businesses are reporting signs that supply backlogs and inflation are beginning to fade.
Elaine Buckberg, chief economist at General Motors, said the pandemic disruptions to overseas production of semiconductors, which have reduced auto output, “have largely dissipated and we’re in a much better position now.” Supply chain disruptions overall, she said, have improved about 80% from the worst days of the pandemic.
Grocery prices have been a particular sore spot for many families. Over the past year, prices of meat, milk and fruits and vegetables have soared by double-digits. But executives at Kroger, the nation’s largest grocery chain, said that falling prices for farm commodities like wheat and corn could slow cost increases for food this year.
“We would expect there to be some flattening out of inflation in the back half of the year,” Gary Millerchip, Kroger’s chief financial officer, told investors last week.
Still, despite signs that inflation is easing, the Fed is expected to impose another substantial increase in its benchmark short-term interest rate when it meets next week. Most analysts expect the policymakers to announce a third straight three-quarter-point hike, to a range of 3% to 3.25%.
The Fed’s rapid rate increases – the fastest since the early 1980s – typically lead to higher costs for mortgages, auto loans and business loans, with the goal of slowing growth and reducing inflation. The average 30-year mortgage rate jumped to nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.
Chair Jerome Powell has said the Fed will need to see several months of low inflation readings that suggest price increases are falling back toward its 2% target before it might suspend its rate hikes.
Copyright © 2022 The Associated Press, Christopher Rugaber, AP economics writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.
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