One Thing Helped Fuel CPI Increase; Here’s CU Economists Are Responding

WASHINGTON–Thanks to a jump in the price of gasoline, the Consumer Price Index climbed 3.7% in the year through August, according to new data from the Bureau of Labor Statistics. 

The new number is likely to lead to wariness at the Fed as it ponders the direction of rates later this month, as the August CPI figure was faster than the 3.2% July reading and the 3.6% that economists had expected, according to analysts. 

Noah Yosif

Categories also seeing cost increases in the new CPI data included airfares, car insurance and auto repairs. 

"Headline inflation rose by 0.4% month-over-month due to a spike in energy prices, suggesting there is still progress to be seen in restraining inflation,” said NAFCU Economist Noah Yosif. “The Fed will likely seek additional data to confirm a temporary or an extended spike in headline and, potentially, core inflation as higher energy prices permeate throughout the broader economy, thus the expectation of a pause in tightening when the committee meets next week remains in place.

“Nevertheless, this was a report that nudges the FOMC towards a more hawkish position. NAFCU believes that even if future inflation data continues to exceed expectations, it is more likely to compel the FOMC to leave rates at their present level for longer, rather than forcing more rate hikes."

CUNA: No Reasons to Increase Rates

Dawit Kebede

“The headline inflation over the past 12 months increased by 3.7% in August, faster than the 3.2% increase in July due to high gas prices. Gas prices were 11% higher in August,” said Senior Economist Dawit Kebede. “Core inflation – which excludes volatile gas and food prices – slowed down to 4.3% from 4.7% in July, relative to a year ago.  Core prices also ticked up slightly higher on a monthly basis by 0.3% after two consecutive months of 0.2% increase in June and July. This is equivalent to a 2.8% percent annualized increase based on average price growth of the last three months. It indicates core inflation is still trending down in the right direction to the Federal Reserve's target despite the slight uptick in August. 

“The Federal Reserve is expected to hold rates steady when they meet later this month. Recent labor market reports indicate a better balance in labor demand and supply as hiring slowed down and labor supply increased, raising the unemployment rate higher,” Kebede continued. “There is nothing in this inflation report that will prompt the Federal Reserve to increase rates during their next meeting.”