US inflation in August rose for the first time since June 2022, rising to 3.7% as a sharp increase in energy prices pushed prices up toward the end of the summer.
Growth in prices still remains far below the decades-high inflation rates that were seen last summer, when the rate peaked at 9.1% in June. Still, an increase in inflation means the US economy is further from the Federal Reserve’s target rate of 2% and will probably make officials consider pushing interest rates up later this year.
The price of energy commodities, including gas and oil, jumped up 10.5% over the last month, according to the latest Consumer Price Index data, which measures the prices of a basket of goods and services. Gas prices ticked up in August as Russia and Saudi Arabia continued aggressive cuts in supply, bringing the price of crude oil to 10-month high at $91 a barrel. Higher gas prices accounted for more than half of the increase in the overall inflation rate.
Meanwhile core inflation, which measures the price of goods and services minus the volatile energy and food industries, actually decreased in August to 4.3%, down from 4.7% in July, reflecting the impact higher energy prices are having on the overall inflation rate.
Even with the decrease in core inflation, which has been higher and going down at a slower rate than the 12-month inflation rate, inflation still remains far above the Federal Reserve’s target rate of 2%.
Though price decreases have been seen in used cars and medical care services over the last few months, home prices have hit a near-record high in June, keeping core inflation stubbornly high. The median home price hit $413,80, the second-highest price ever, according to the National Association of Realtors. Home prices cooled slightly to $406,700 in July, but home prices still remain 7.3% higher than a year earlier.
Even with inflation slightly up, the Fed is on track to keep interest rates the same at their next board meeting on 20 September. Economists say the Fed has had a pause planned for the meeting for a while as many officials say the economy has yet to feel the full effects of interest rates, which are at a 22-year high at 5.25% to 5.5%.
But as the health of the economy continues to be hard to pin down – job growth has remained relatively stable even amid high interest rates, but inflation is still far from 2% – the Fed could still raise interest rates at future meetings. Future interest rate increases could introduce more volatility to the US economy, and potentially trigger a recession, though the Fed’s mission to bring down inflation has yet to bear dramatic consequences.
The Fed chair, Jerome Powell, said last month that officials were aware of the precarity, saying they will “proceed carefully” as they decide what to do with interest rates. Powell has said the overall decline in inflation has been a “welcome development”, but it still remains high.
“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” he said.
