High prices have forced Americans to spend a larger share of their income on basic goods
High prices have forced Americans to spend a larger share of their income on basic goods
Washington (AFP) – Annual inflation in the US slowed slightly in August, largely due to lower gasoline prices – but likely not enough to satisfy the Federal Reserve and President Joe Biden, as higher prices continue to hurt By the Americans.
The Labor Department said Tuesday that the Consumer Price Index, a key gauge of inflation, actually rose 0.1 percent in August compared to July, when prices were flat, a disappointing result amid widespread expectations of lower inflation for the month.
The annual pace of inflation improved to 8.3 percent, higher than expected but slightly lower than previous months and confirming a slowdown from a rate of 9.1 percent in June – the highest rate in 40 years.
Prices have been rising for months, exacerbated by Russia’s invasion of Ukraine, which has affected energy and food costs, as well as the continuation of the supply chain amid the Covid lockdowns in China.
Inflation has become a hot political issue just weeks after a major midterm congressional election, and Biden has made fighting high prices his top domestic priority.
But he acknowledged on Tuesday that it will take longer to slow inflation pressures.
“Today’s data shows further progress in reducing global inflation in the US economy. Overall, prices have been basically flat in our country for the past two months,” Biden said in a statement.
However, “it will take more time and determination to bring down inflation.”
While Americans will welcome relief at the pump — there has been a steady drop in gasoline prices, which fell 10.6 percent last month — food and housing costs continue to rise, straining household budgets.
The food index increased 11.4 percent from a year ago, the report said, the largest increase in 12 months since the period ending in May 1979.
Medicare was also a major contributor, and auto prices accelerated, rising 0.8 percent in the month, according to the report.
Even more worrisome, the report showed that – excluding volatile food and energy prices – the “core” CPI rose by 6.3 percent over the past 12 months, faster than the pace of 5.9 percent in July and June.
The data showed that core CPI jumped 0.6 percent in August, double the pace of July.
– ‘Ugly’ data –
Jason Furman, a former White House economist, said the data “isn’t pretty.”
He said on Twitter that the “ugly” basic data showed that “widespread relief is not coming”.
A graph showing the change in the US consumer price index since 1948
The Federal Reserve views inflation as the biggest risk to the world’s largest economy, and has moved aggressively to cool demand, raising its benchmark lending rate four times this year — with a third straight rise of three-quarters points widely expected next week.
The Fed’s actions increase the cost of borrowing for home and business buyers, dampening investment and spending.
Federal Reserve Chairman Jerome Powell said the central bank will do whatever it takes to ensure high prices do not take hold, even at the risk of pushing the economy into recession.
On Friday, Powell warned that “the clock is ticking,” vowing “to keep working until the job is done.”
Treasury Secretary Janet Yellen acknowledged Sunday that there is “certainly a risk” of an economic downturn amid rising lending costs, but noted that the US labor market is
“exceptionally strong” with nearly two job openings for every worker looking for a job.
“We cannot have a strong labor market without controlling inflation,” she warned.
A robust labor market — the unemployment rate was 3.7 percent in August — provides some relief to the Federal Reserve, giving policymakers room to maneuver, potentially damping inflation without a sharp increase in unemployment.
But the labor shortage remains a concern because it could fuel a dangerous wage spiral.
The latest data confirms that “inflation readings remain unacceptably high for policy makers,” said Rubella Farooqi of High Frequency Economics.
“Besides the labor market that remains strong, the data seals the deal with a 75 basis point rate hike next week,” she said in an analysis.
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