The rising energy cost dilemma

Headline CPI rose 0.4% in August, its biggest monthly increase since May, with gasoline accounting for more than a third of the increase.

• The Fed typically looks through temporary supply shocks, but a sustained energy surge risks spilling into other prices — and energy price pressures have only escalated further in September.

Zoom out: Central banking orthodoxy would suggest not responding to energy price shocks directly, but responding to the extent that swings in fuel prices are filtering through to broader prices.

• Unfortunately for anyone seeking lower borrowing costs, there is evidence that this is indeed happening, risking energy-driven inflation becoming more entrenched.
• Soaring diesel fuel prices are affecting the price of transportation of all sorts of goods, with the biggest effects on bulky or heavy items.
• Airline fares were up 2.7% in August alone and are up 23.4% over the last 12 months.

Between the lines: If energy price relief were in progress, it would be easier to look through those price surges. No relief is in sight, however.

• Those figures are already backward-looking. The energy shock has since worsened this month, with oil prices around $100 a barrel and diesel topping $6 a gallon for the first time on record — all pointing to more inflation pressure still to come.