The numbers: The cost of living rose in August at the slowest pace in seven months and signaled a big surge in inflation this year may have peaked, but Americans probably aren’t going to get much relief from higher prices anytime soon.
The consumer price index climbed 0.3% last month, the government said Tuesday. Economists polled by The Wall Street Journal had estimated a 0.4% increase.
The rate of inflation over the past year, meanwhile, slipped to 5.3% in August from 5.4%. It’s the first decline since last October.
Aside from a brief oil-driven spike in 2008, consumer prices have risen this year at the fastest pace in three decades. Consumers are paying more for food, gas, new and used cars and other goods and services.
Another closely watched measure of inflation that omits volatile food and energy rose an even smaller 0.1% in August. That’s the smallest increase since February.
This so-called core rate is closely followed by economists as a more accurate measure of underlying inflation.
The 12-month increase in the core rate fell for the second month in a row to 4% after hitting a 30-year high in June.
Big picture: The big wave in inflation this year is all but certain to crest soon, and perhaps it’s already started. The big debate on Wall Street and in Washington is how much price pressures recede and how long it takes.
The Federal Reserve is sticking to its prediction that the rate of inflation will fall toward its 2% target some time in the next year. Fed officials believe labor and material shortages spawned by the pandemic will fade and ease the upward pressure on prices.
Fed critics contend some inflation is getting ingrained in the economy. They worry inflation will remain well above 2% through next year and potentially pose a threat to the U.S. recovery.
For now Wall Street isn’t worrying all that much, but inflation could become a major issue in the 2022 U.S. elections if it doesn’t begin to subside soon. Republicans have used high inflation to attack the economic policies of President Joe Biden.
Americans themselves are pessimistic about inflation. A new survey by the New York Federal Reserve shows consumers expect inflation to average 5.2% in the next 12 months. These surveys haven’t always proven to be a good predictor, however.
Market reaction: The Dow Jones Industrial Average
DJIA,
+0.76%
and S&P 500
SPX,
+0.23%
were set to open higher in Tuesday trades. The smaller-than-expected increase in inflation gave a boost to stocks. They had been trading lower in premarket action.
The yield on the 10-year U.S. Treasury note
TMUBMUSD10Y,
1.330%
rose slightly.
