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U.S. inflation decelerated in August, but remained higher than economists predictions, confirming the US Federal Reserve will stay aggressive in raising interest rates. The consumer price index rose 8.3% in August YoY, a mild slowdown from the 8.5% reported for July. Economists at FactSet had forecasted an 8.1% increase.
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Energy prices fell 5% for the month, led by a 10.6% slide in the gasoline index. However, those declines were offset by increases elsewhere. The food index increased 0.8% in August and shelter costs, which make up about one-third of the weighting in the CPI, jumped 0.7% and are up 6.2% from a year ago.
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The CPI numbers all but confirm a 0.75 percentage point rate increase by the Fed. Traders took the possibility of a half-point move completely off the table and even were pricing in a 10% chance of a full percentage point hike according to data.
14 Sep 2022
Did inflation peak, again?
Highlights from the August CPI report
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Why it matters
The jobs report earlier this month revealed that the labor market, although still robust, is starting to slow amid rising labor costs, which signals that the Fed’s policy changes are starting to take effect. With a still very strong labor market and high inflation, there is little reason for the Fed to stop its aggressive approach just yet, and in recent weeks, Fed officials in several speeches have indicated that they are willing to do whatever it takes to defeat inflation.