The Consumer Price Index (CPI) – the gauge for inflation – was up 3.7% from a year ago, according to the U.S. Bureau of Labor Statistics. The energy index rose 5.6% in August, which included a 10.6% surge in the cost of gasoline.
Shelter costs, which make up about one-third of the CPI weighting, were up 7.3% from a year ago. Within the shelter category, the rent index jumped 7.8% from a year ago. Economists have warned that rent increases often lag interest rate hikes by several months and they expect rents have not yet reached a peak.
Grocery prices overall were up 3% in August compared to a year ago. The cost of cereals and bakery items was up 6% over the past year. Meat, poultry fish and egg prices were unchanged year over year. The remaining major grocery store food groups posted increases ranging from 0.3% for dairy and related products to 4.8% for nonalcoholic beverages such as soda and sports drinks.
Restaurant prices were up 6.5% over the last year. The index for limited-service meals rose 6.7% over the last 12 months, and the index for full-service meals increased 5.2% over the same period.
Fuel costs are also rising and further squeezing consumer budgets. The gasoline index increased 10.6% in August, following a 0.2% increase in the previous month.
Consumers are also seeing higher insurance costs with motor vehicle costs soaring 19.1% from a year ago. The cost of personal care services increased 5.8% from a year ago and new car costs are up about 3% year over year. Apparel costs are up 3.1% compared to August of last year. Airfares are down 13.3% from August 2022. Used car prices are down 6.6% from a year ago. Medical care costs were also down 2.1% from the year-ago period.
The closely-watched core CPI increased 4.3% from a year ago and was on par with estimates. Federal Reserve officials focus more on the core reading because it provides a better indication of where inflation is heading over the long term and excludes volatile energy and food costs. Core CPI was up 4.7% in July compared to the year-ago period and remains well below the high of 6.6% in September 2022.
Core CPI is more than twice the 2% target of the Fed Chairman Jerome Powell. Sarah House, a senior economist at Wells Fargo, said inflation is cooling year over year which is positive news. She expects core inflation will continue to decline down to 2.2% in 2024.
“We’re starting to see progress on inflation,” she says. “But there’s still quite a bit of distance before we reach the overall target of 2%.”
Wells Fargo Securities economists said the economy is a mixed bag and that is likely to continue. They said food and fuel inflation is problematic at the same time rents and interest rates on credit cards continue to rise. They contrast that with strong employment numbers and continued consumer spending for necessities and select services despite the higher prices.