Inflation numbers for August are in and prices remain stubbornly high.
The Consumer Price Index, or CPI, jumped 0.6 percent in August after it increased by 0.2 percent in July, the U.S. Bureau of Labor Statistics reported on Wednesday. Over the last year, inflation increased 3.7 percent, with high gas prices a key reason behind the jump, accounting for over half of the increase.
"Also contributing to the August monthly increase was continued advancement in the shelter index, which rose for the 40th consecutive month," the U.S. Bureau of Labor Statistics said. The shelter index is how the Bureau accounts for housing costs for consumers.
The news, which shows inflation way higher than the Federal Reserve's target of 2 percent, suggests that when policymakers meet next week, they are likely to retain their high interest rates stance, with implications for mortgage rates that could stay high for the foreseeable future as a result.
Wednesday's data release also showed that core inflation, which excludes food and energy due to the volatility of those two components, jumped 4.3 percent over the last year, a slight decrease from last month's 4.7 percent.
"The shelter index was the largest factor in the monthly increase in the index for all items less food and energy," BLS said.
The latest inflation number illustrates the challenge facing the Federal Reserve which has taken aggressive steps in hiking interest rates to slow down spending and thereby arrest the rise in prices. Starting in March of last year, the Fed has raised rates to their highest level in more than two decades currently at a range of 5.25-5.5 percent. High interest rates have contributed to an increase in mortgage rates which have hit their highest levels in more than two decades.
With the latest release continuing to show how stubborn inflation remains, the Fed is likely to retain its high interest rate posture, analysts said on Wednesday.
"We think the Fed will look past the jump in the headline CPI, which was driven by a spike in energy prices. The small uptick in the core CPI might be of more concern, but we don't think it will lead to a rate hike, although the risks are tilted in that direction," Nancy Vanden Houten, a senior economist at Oxford Economics, told Newsweek.
The latest inflation data may not impact the housing market directly or mortgage rates, "although I expect they will remain high," she added.
The numbers showed that consumer services prices are elevated as Americans are still out there traveling, going out to eat, attending sporting events and concerts contributing to high inflation numbers, Torsten Slok, chief economist at Apollo Global Management, told Bloomberg.
"So on a number of fronts it's still for the Fed the case that they might still have to step a little bit harder on the brakes. I don't think we'll get more of Fed hikes. But they still need to keep rates elevated to make sure the service sector starts to slow down, because we have not really seen that quite yet," he said.
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Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
