Inflation isn’t just about fuel costs anymore, as price increases across the economy
A person shops in a supermarket as inflation affects consumer prices in New York City, June 10, 2022.
Andrew Kelly | Reuters
Over the better part of a year, the inflation narrative among many economists and policymakers suggests that it is essentially a food and fuel issue. Once supply chains loosen and gas prices fall, this mindset will help reduce food costs and thereby ease price pressures across the economy.
August Consumer price indexHowever, examining that story critically, with a widening increase suggests that inflation may now be more persistent and longer-lasting than previously thought.
CPI does not include food and energy prices — so-called core inflation — rose 0.6 percent on the month, more than double the Dow Jones estimate, dragging on a year-over-year cost-of-living increase of 6.3 percent. Including food and energy, the index gained 0.1% monthly and a strong 8.3% on a 12-month basis.
At least, the source of the increase wasn’t gasoline, which fell 10.6% on the month. While the summer drop in energy prices has helped curb headline inflation numbers, it hasn’t allayed concerns that Inflation will still be an issue in a period of time.
The rise of inflation
Instead of fuel, it was food, shelter and medical services that drove costs higher in August, levying a hefty tax on those least able to pay and raising important questions. Where does inflation come from?
“That’s the most frustrating aspect of the report,” said Mark Zandi, chief economist at Moody’s Analytics.
Indeed, the price of new cars and medical care both rose 0.8 percent on the month. Temporary accommodation costs, which include rent and many other housing-related costs, accounted for nearly a third of the CPI share and rose 0.7 percent on the month.
Food costs are also very low.
The Home Food Index, a good proxy for grocery prices, has gained 13.5% over the past year, its biggest gain since March 1979. Prices continue to climb for items like eggs. and bread, putting an increasing strain on household budgets.
For medical care, the 0.8% monthly increase was the fastest monthly increase since October 2019. Veterinary costs rose 0.9% on the month and increased 10% over the past year.
“Even things like the price of clothes, which usually go down, go up a bit [0.2%]. My view is that with these lower oil prices, they hang on and assuming they don’t rebound, that would leave inflation broadly moderated,” Zandi said. I don’t change my inflation forecast to go back [the Federal Reserve’s 2% target] early 2024, but I’d say I hold that forecast with less faith. “
On the positive side, prices for items such as airline tickets, coffee and fruit fell. One survey released earlier this week Fed in New York shows that consumers are less afraid of inflation, although they still expect interest rates to stay at 5.7% a year from now. There are also signs that Supply chain pressure is easingmust be disinfected at least.
Higher oil possible
But about three-quarters of the CPI remains above 4% due to annual inflation, reflecting a long-term trend that has rejected the idea of ”transient” inflation that the White House and the Fed have promoted.
And low energy prices are nonexistent.
US and other G-7 nations say they intend to impose price controls on Russian oil exports starting on December 5could invite retaliation that could boost prices later in the year.
“If Moscow cuts off all natural gas and exports oil to the European Union, the United States and the United Kingdom, it is very likely that oil prices will retest the highs set in June and cause gas prices to fall. the average is back up, said Joseph Brusuelas, chief economist at RSM, which is currently $3.70 a gallon.
Brusuelas added that even if housing is going downhill and a recession is possible, he thinks the drop in prices there is likely to be volatile, as housing has “a good year to go before the data. in that vital ecosystem is improved.”
With so much inflation still going on, the big economic question is How far will the Fed go? with an increase in interest rates. The market is betting the central bank raises the benchmark rate by at least 0.75 percentage points next weekThis would bring lending rates to their highest levels since early 2007.
“Two percent represents price stability. That’s their goal. But how do they get there without breaking something,” said Quincy Krosby, chief equity strategist at LPL. Financial said. “The Fed isn’t over yet. The road to 2% will be tough. Overall, we’re going to start to see inflation continue to slide lower. But where do they stop?”