Inflation Advances in August Due to Gasoline

The consumer price index accelerated by 0.6% monthly in August, surpassing expectations of 0.6% and the 0.2% recorded in July. This marked its largest advance in 2023. Consequently, annual inflation reached 3.7%, exceeding the expected 3.6% and the 3.2% observed in July.

On the other hand, core CPI inflation, which excludes volatile components such as food and energy, increased by 0.3% in August, surpassing the expected 0.2%. Its annual change stood at 4.3%, in line with expectations but lower than the 4.7% reported in July. This component comprises approximately 80% of the entire index, highlighting its significance in the Federal Reserve’s monitoring efforts.

When breaking down the figures, the gasoline index contributed the most to the monthly increase in all items, accounting for over half of the overall rise. Gasoline prices surged by 10.6% in the month (declining by 3.3% annually). Overall, the energy category saw a monthly increase of 5.6% (with an annual decrease of 3.6%). However, these pressures in gasoline and energy are expected to be temporary.

Meanwhile, the continuous rise in the shelter index continued to exert pressure, marking 40 consecutive months of increases. The shelter index increased by 0.3% during the month (and 7.3% annually). The food index exhibited a 0.2% increase (4.3% annually), with the food at home category rising by 0.2% monthly (3% annually) and food away from home increasing by 0.3% monthly (6.5% annually). Additionally, the report showed that airfares increased by 4.9% in the month but decreased by 13.3% annually. Used vehicle prices, which significantly contributed to inflation in 2021 and 2022, declined by 1.2% in the month and registered a 6.6% annual decline. Transportation services increased by 2% in the month, with an annual increase of 10.3%.In summary, the numbers present a mixed but somewhat neutral outlook for the Federal Reserve’s next decision (consensus discounts as a fact that there will be no rate hike next week). It is evident that inflation is declining from its peak of approximately 9% annually in June 2022, the highest since November 1981. However, there is still room for improvement as core CPI remains elevated due to pressures in shelter, while employment indicators continue to show strength.

CPI monthly change (%) over the last twelve months

Source: U.S. Bureau of Labor Statistics

Change (%) in the last twelve months in CPI and Core CPI

Source: U.S. Bureau of Labor Statistics