Sep 13, 2023 - Economy

August's CPI report is glass half-empty/half-full

Illustration of a magnifying glass examining a tiny dollar bill

Illustration: Sarah Grillo/Axios

Wednesday's Consumer Price Index report is a split progress report on inflation: Underlying price pressures are receding. But August was a bad month for ordinary Americans' cost of living.

Why it matters: Policymakers focus on the core measure of inflation, which offers a less volatile picture of underlying price pressures across the economy.

  • But headline inflation — including gasoline prices — shapes the financial well-being of American households.
  • And that's where the news was bad.

By the numbers: Headline CPI rose 0.6% in August, the largest increase since June 2022. A sharp jump in gasoline prices (up nearly 11%) was the culprit, alone accounting for more than half of the overall monthly increase.

  • The result was a decline in inflation-adjusted pay: Real average hourly earnings fell by 0.5% in August, breaking a five-month streak of rising pay by this measure.

Yes, but: Excluding energy and food prices, the inflation outlook is encouraging. On a monthly basis, core prices rose 0.3%.

  • That was a tick hotter than the 0.2% economists expected. But over the past three months, core inflation ran at a 2.4% annual rate, the lowest since March 2021.
  • It's also within striking distance of the Fed's 2% inflation target, especially considering that CPI runs a bit higher than the Personal Consumption Expenditures Price Index inflation gauge targeted by the Fed.
  • As such, it cements expectations that the Fed won't raise interest rates at its policy meeting next week.

What to watch: There is potential for a spillover effect from the higher energy prices pushing the headline measure into the gauge watched by the Fed.

What they're saying: "Higher energy costs have rippled through to pricing for public transportation and airfares," Jim Baird, chief investment officer of Plante Moran Financial Advisors, wrote in a note. Transportation services rose 2% in August, while airline tickets surged 5% after three months of price declines.

  • Upward inflationary pressure from energy prices "is likely to repeat" this month and next, "given the continued rise in oil prices," notes Preston Caldwell, chief economist at Morningstar.
  • Moreover, energy-driven inflation could create upward pressure on inflation expectations for consumers and businesspeople, which can be self-fulfilling.

The bottom line: For now, the CPI numbers add to a run of data recently that suggests inflation is receding alongside a cooling labor market. But that is little solace for families struggling to afford everyday items.

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