Inflation in the United States remains high; groceries, rent, new car prices go up again


WASHINGTON (AP) — Falling gas costs slowed U.S. inflation for a second consecutive month in August, but most other prices in the economy continued to rise — proof that inflation remains a heavy burden for American households.

Consumer prices rose 8.3% from a year earlier and 0.1% from July. But the jump in “core” prices, which exclude volatile food and energy costs, was particularly worrisome. It beat expectations and raised fears that the Federal Reserve could raise interest rates more aggressively and increase the risk of a recession.

Fueled by high rents, medical care and new cars, basic prices jumped 6.3% for the year ending in August and 0.6% from July to August, the government said on Tuesday. Furniture and sports equipment, among many other items, have also become more expensive, suggesting that companies are continuing to raise prices in response to strong consumer demand.

The scale of the price increases has dashed hopes, at least for now, that core inflation would moderate. Economists tend to follow basic prices for a clearer reading of the direction inflation is heading.

Stock prices plunged, with the S&P 500 index suffering its worst day in June 2020 – a loss of more than 4% – and bond yields jumped on worse-than-expected core numbers. Many investors now fear that the Fed will tighten credit even more aggressively in its bid to rein in inflation. Chairman Jerome Powell is expected to announce another sharp increase in the Fed’s key rate next week, which will drive up the cost of personal and business lending.

Further aggressive Fed rate hikes could weaken growth to the point of pushing the economy into a slowdown. Some economists now expect the Fed to raise its benchmark short-term rate, currently in a range of 2.25% to 2.5%, to 4.5% or more by the start of the month. next year. This would make it even more difficult for the central bank to achieve its goal of a “soft landing”, whereby it would tame inflation without causing a recession.

“It was a disappointing report,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. “This increases the risk of higher interest rates and a hard landing in the economy.”

Inflation is higher than many Americans have ever seen, driving up families’ grocery bills, rents and utility costs, among other expenses. It added to the sluggishness of the economy despite strong job growth and low unemployment.

Republicans have sought 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, although they say that tangled supply chains, steep wage increases and Russia’s invasion of Ukraine were also key factors in the surge in the economy. inflation.

At the same time, lower gasoline prices — for consumers, perhaps the most visible barometer of inflation — could bolster Democrats’ prospects in the midterm election. That may have already contributed to slightly higher public approval ratings for Biden.

In a statement on Tuesday, the president said, “Overall, prices have remained essentially stable in our country for the past two months. This is good news for American families, with more work to do.

In his speeches, Biden has generally stopped referring to the impact of inflation on family budgets. Instead, he pointed to his administration’s recent legislative achievements, including a law signed into law last month aimed at reducing pharmaceutical prices and tackling climate change.

Nationally, the average cost of a gallon of gas has fallen to $3.71 from just over $5 in mid-June. But grocery prices continued to rise rapidly, jumping 0.7% from July to August. Over the past year, they have climbed 13.5%, the biggest 12-month increase since 1979.

Chicken prices have risen nearly 17% over the past year. And egg prices jumped 2.9% in August alone from July and were up nearly 40% from a year ago.

Worsening food inflation is putting particular pressure on low-income families, more of whom have had to turn to food banks and other assistance as inflation has worsened. Mary Jane Crouch, executive director of America’s Second Harvest of Coastal Georgia, which works with a network of food banks, said 38% more food was distributed in August compared to July.

Although much of the food is donated, Crouch said his organization buys some of it and has faced steep increases in meat and dairy prices in recent months.

And prices for many other goods continue to rise even as supply chain issues unravel, said MacroPolicy economist Rosner-Warburton.

“Companies are still experiencing significant price increases for these products, and that’s problematic,” she said. This means that the Fed will likely have to redouble its efforts to slow consumer spending through higher rates.

Elaine Buckberg, chief economist at General Motors, said on Friday that the pandemic disruptions to overseas semiconductor production, which slowed auto production, have dissipated significantly and the overall supply chain disruptions supply have improved by about 80% compared to the worst days of the pandemic.

Yet Americans are still in desperate need of cars, Buckberg said, which has allowed dealerships to maintain margins well above pre-pandemic levels. New car prices, which rose 0.8% in August, have climbed nearly 11% over the past year.

“Virtually every vehicle that comes to a dealership has already been sold to someone,” she said.

Continued price increases for raw materials – and labor – have left many small businesses struggling. Some are raising their own prices to keep up, only to lose customers, according to a Goldman Sachs 10,000 Small Business Voices survey.

Meaghan Thomas, co-owner of Pinch Spice Market in Louisville, Kentucky, an online seller, has avoided raising prices for the past two years but fears it could last if inflation gets worse.

The price for shipping spices from overseas has quadrupled, she said, and she has seen little relief so far despite reports that those costs are falling. The cost of spices, which Thomas and his partner grind and blend in a small factory, has jumped 25% over the past year.

The company’s profit margin has been cut in half, Thomas said, but she and her partner think it’s important to keep their products affordable. She says big business has made inflation worse by raising prices unnecessarily.

“We can hold on for a bit if all these other companies can stop raising their prices,” she said.

Wages continue to rise at a healthy pace – before adjusting to inflation – which has increased demand for apartments as more and more people move on their own. A shortage of available housing has also forced more people to continue renting, intensifying competition for apartments.

As a result, rental costs jumped 6.7% in August from a year earlier, the most since 1986. Rents are moving much more slowly than the prices of basic commodities like gasoline. This could mean that apartment prices will keep inflation high until 2023.

Other data from companies like Apartment List, which tracks prices for new apartments and leases, suggests rental price inflation is starting to ease. But that data takes time to filter through to government metrics, which track all rents.

Rosner-Warburton said it’s unclear if these cuts, when they start to affect the government’s measure, will slow inflation enough for the Fed.

“At this point, we have to see it to believe it,” she said.

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