US consumer prices increased for a third consecutive month in August as inflation continued to rise on the back of the economic rebound from the worst period of the pandemic.
The August data released by the US Bureau of Labor Statistics was the first since the Federal Reserve announced that it would shift to an “average” inflation target, allowing for periods of higher inflation to support the economy’s recovery.
The figures showed the consumer price index rising by a seasonally adjusted 0.4 per cent last month compared with July, topping economists’ average forecast of a 0.3 per cent per cent gain. Core CPI — which strips out volatile food and energy prices — registered an annual rise of 1.7 per cent in August, its highest level since the pandemic began.
While economists said the rebound in inflation was evidence of the recovery’s progress, they cautioned that the price gains may not last, since they were partially driven by inventory shortages. Moreover, the US economy is still suffering from weak demand with high unemployment and lots of slack in the labour market. The Fed is not expected to meet its goal of 2 per cent inflation over time for years to come.
“Consumer prices are rebounding from the pandemic shock, but as supply shortages are resolved, upward price increases should moderate,” said Kathy Bostjancic, chief financial economist at Oxford Economics.
“The Fed’s new policy objectives underscore that monetary policy will remain very accommodative for a considerable time. We do not anticipate Fed lift-off from the effective lower bound [of interest rates at zero] until mid-2024.”
The CPI had already been up 0.6 per cent in June and July. It slipped 0.8 per cent in April during the height of the shutdowns, the biggest drop since December 2008.
Prices rose across a broad range of categories last month. Used cars and trucks, which recorded a 5.4 per cent jump in prices, were the main driver of the month’s advance. Indices for petrol, shelter, recreation and household furnishings and operations also contributed, the BLS noted.
Food prices ticked 0.1 per cent higher after falling in July. Prices for eating out climbed, offsetting declines in foods for the home that posted sharp increases during the shutdowns.
On a month-to-month basis, core CPI, which excludes volatile food and energy prices, was also up 0.4 per cent month-to-month, stronger than the 0.2 per cent rise projected by economists in a Reuters poll.
Prices that businesses receive for their products and services also rose more than expected in August, based on BLS figures published on Thursday. The producer price index was up 0.3 per cent against the previous month, compared with economists’ forecast for 0.2 per cent growth and following a 0.6 per cent jump in July.