Inflation Remained High But Grew at a Slower Pace in August

What’s the story?

• The Bureau of Labor Statistics (BLS) on Tuesday reported that over the last 12 months the all items consumer price index (CPI) rose by 5.3%, meaning that inflation grew at a slightly slower pace than the last two months. June and July each saw a 5.4% price increase over the prior 12 months, the highest inflation rate since the period ending in August 2008.
• Month-to-month consumer prices rose by 0.3% in August, which was lower than the increases of 0.5% in July, 0.9% in June, and 0.6% in May. June’s monthly price increases were the most since a 1% jump in June 2008.
• The news comes after a report released by the Federal Reserve Bank of New York on Monday found that consumers expect inflation at 4% over the next three years, an increase in inflation expectations of 0.3 percentage points from the prior month.

What goods did prices increase the most for?

• Here’s a rundown of the common items which have seen the largest increase in inflation year-over-year (notable monthly changes in parentheses):
• Gasoline prices of all kinds increased 42.7% over the last 12 months (including a 2.8% increase in August).
• Fuel oil increased 33.2%.
• Used cars and trucks increased 31.9% (including a drop of 1.5% in August).
• Utility gas service (piped) increased 21.1%.
• Lodging away from home increased 17.4%.
• Bacon increased 17%.
• Beef steaks increased 16.6%.
• Fresh fish and seafood increased 10.6%.
• Eggs increased 9.9%.
• Furniture and bedding increased 9.5%.
• New vehicles increased 7.6%.
• Chicken increased 7.2%.
• Airline fares increased 6.7%.
• Electricity increased 5.2%.

What is inflation and how is it measured?

• Inflation is a measure of the decline of purchasing power for a given currency over time, which in the U.S. means that a dollar effectively buys less than it did in prior periods because prices rise.
• The most common way inflation is measured is through the Consumer Price Index for Urban Consumers (CPI-U), which shows changes in prices paid for a “representative basket of goods and services” by an urban consumer group representing about 93% of the U.S. population.
• CPI-U includes food, energy, commodities like cars and clothes, plus services such as rent and healthcare; and the relative importance of each to the overall basket shifts according to its proportion of all spending in a given month. This overall number is known as “headline” CPI, although economists also track a metric called “core” CPI which excludes food and energy because those categories tend to have more volatility.
• The Federal Reserve aims to keep inflation at about 2% as part of its dual mandate of promoting stable prices and full employment, as a modest amount of inflation is viewed as an optimum policy in terms of encouraging consumer spending without penalizing savings and investment. When inflation starts to get out of control, the Fed raises interest rates to encourage more savings and less consumer spending.

— Eric Revell

(Photo Credit: iStock.com / sefa ozel)