Is inflation getting worse? Consumer prices are expected to post the biggest gain in August in more than a year. Here’s how to read the latest consumer-price index.
The forecast
Consumer prices are expected to jump 0.6% in August — the biggest increase in 14 months — according to economists polled by the Wall Street Journal.
By contrast, the CPI barely rose in each of the past three months.
The chief culprit? Higher oil prices. The cost of oil has surged almost 25% since late July. In some parts of the U.S, the cost of gas has even topped $4 a gallon.
As a result, the yearly rate of inflation could climb to 3.6% August from 3.2% in July and from a 27-month low of 3% in June.
Yet if energy is set aside, inflation is easing in most parts of the economy. And most economists predict it will continue to slow, giving the Federal Reserve the green light to end its latest cycle of interest-rate increases aimed at taming inflation.
Core inflation
That’s why the so-called core rate of CPI is sure to get more attention. The core rate strips out food and energy to get a better idea of the underlying trend in inflation. Jumpy food and gas prices can often distort U.S. inflation readings in the short run.
The core CPI is forecast to rise a smaller 0.2% in August, in line with recent trends.
What’s more, the yearly rate of core inflation is seen dropping to a 22-month low of 4.3%, from 4.7% in the prior month.
While that’s still far above the Fed’s 2% inflation goal, core inflation has steadily declined from a 40-year high of 6.6% one year ago. And there’s little reason not to expect the downtrend to persist.
“We believe the underlying inflation trend remains soft,” economists Aichi Amemiya and Jeremy Schwartz of Nomura wrote in a note to clients. “We maintain our view that the Fed will keep policy rates on hold through year-end.”
Rent and home prices
The single biggest expense for most people is their rent or mortgage payment. So it’s no surprise that rising rents and home prices have stoked inflation. Shelter costs have increased 7.7% in the past year, more than double the prepandemic level.
The good news is that rents are not going up as much. In both July and June, rents rose 0.4%, or half as fast as in early 2023.
Fed officials expect to receive more relief on shelter costs, which will help drive the rate of inflation lower. Yet to due a quirk in the way these costs are calculated in the CPI, a big shift in prices could take several months or more to show up.
Wild cards
There have been a lot of surprises during the worst spell of U.S. inflation since the early 1980s. More recently, the cost of plane tickets has fallen sharply to help deliver three straight low inflation readings since May.
Airfares have fallen four months in a row, including back-to-back declines of 8.1% in July and June.
Is that just another quirk in the CPI? Maybe, but airfares are bound to show an increase soon, if only because of rising fuel prices. Americans are also flying in near-record numbers.
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