Lower gas prices slow inflation for 2 months in a row

WASHINGTON (AP) – US inflation slowed for the second straight month in a sharp fall in gas prices, yet including energy most other items got more expensive in August, a sign that inflation remains a heavy burden for American households.

Consumer prices rose 8.3% in August compared with a year earlier, the government said Tuesday, down from an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.

But not including the volatile food and energy category, called the core price jumped 0.6% from July to August – up sharply from 0.3% the previous month and dashing hopes, for now, the core price may start moderate. In the 12 months ending August, core prices rose 6.3%, up from 5.9% in July. Rent, medical care services and new cars are all more expensive in August.

Core prices usually provide a clearer reading of cost-led than overall inflation. Stock index futures tumbled in worse-than-expected core figures, with many investors fearful that the Federal Reserve will now raise interest rates even faster in its drive to curb inflation.

Inflation remains much higher than many Americans have ever experienced and keeps pressure on the Fed. The central bank is expected to announce another big increase in its benchmark interest rate next week, which will lead to higher costs for many consumers and business borrowers.

Inflation has raised family grocery bills, rent and utility bills, among other costs, causing hardship in many households and weighing on the economy despite strong job growth and low unemployment. Groceries continued to rise rapidly, jumping 0.7% from July to August. In the past year, they rose 13.5% – the biggest 12-month increase since 1979.

Even if inflation peaks, economists think it could take two years or more to come back down to something close to the Fed’s 2% annual target. Apartment rental costs and other services, such as health care, are likely to rise in the coming months.

Republicans have tried to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s $1.9 trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they also say that snarled supply chains, Russia’s invasion of Ukraine and shortages of goods such as semiconductors have been key factors in the surge in inflation.

But signs that inflation may be peaking — or soon — could boost Democrats’ prospects in the midterm elections and may have contributed to slightly higher public approval ratings for Biden. In his speech, Biden generally stopped short of referring to the impact of high prices on family budgets. He even highlighted the recent legislative achievements of his administration, including the law enacted last month that is intended to reduce pharmaceutical prices and fight climate change.

Nationally, the average cost of a gallon of gas has fallen to $3.71, down from a high of $5 in mid-June. Many businesses are also reporting signs that supply backlogs and inflation are starting to fade.

General Motors has said that pandemic disruptions to overseas semiconductor production, which reduced auto output, have largely disappeared and that overall supply chain disruptions have increased to about 80% from the worst days of the pandemic.

Over the past year, prices for meat, milk and fruits and vegetables have risen by double digits. But executives at Kroger, the nation’s largest grocery chain, said falling prices for farm commodities such as wheat and corn could slow the increase in food costs.

Next week, most Fed watchers expect the central bank to announce its third straight three-quarter-point hike, to a range of 3% to 3.25%. The Fed’s rapid rate of hikes — the fastest since the early 1980s — has typically led to higher costs for mortgages, auto loans and business loans, with the goal of slowing growth and reducing inflation. The average 30-year mortgage rate jumped nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.

Chair Jerome Powell has said the Fed needs to see several months of low inflation readings that show price increases fall back to its 2% target before it can suspend its rate hikes.

Wages are still rising at a strong pace – before adjusting for inflation – which has boosted demand for apartments as more people go out on their own. The lack of available homes also causes more people to stay in rent, thereby increasing competition for apartments.

Rising rents and more expensive services, such as medical care, also keep inflation high.

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