Inflation data released Tuesday showed prices rose slightly in August, exacerbating costs for US households as the Federal Reserve gears up to decide on another rate hike next week.
The data raises the question of whether inflation has peaked.
On a monthly basis, the consumer price index rose 0.1% in August, a step higher than the flat month-over-month movement in July, according to the Bureau of Labor Statistics.
The consumer price index, or CPI, rose 8.3% in August last year, a slight slowdown from 8.5% in July, the agency said.
The stock market collapsed due to the higher-than-expected inflation report. During Tuesday morning trading, the Dow Jones Industrial Average fell nearly 900 points, representing a 2.75% drop. Meanwhile, the S&P 500 – the index to which many 401(k)s are linked – fell by 3.1%. The tech-heavy Nasdaq plunged more than 4%.
The CPI continued to show one bright spot: petrol prices. The cost of gas continued to fall significantly, falling 10.6% in August.
Prices outside the energy sector have largely increased. Food prices rose 0.8% month-on-month, slowing down their monthly rise in July, but remaining very high.
Measures taken by consumer prices for shelter, new vehicles and clothing all rose faster in August than in the previous month.
The data arrives just over a week before Federal Reserve officials meet to determine what investors expect will be another hike in borrowing costs aimed at fighting inflation.
The Fed has implemented a series of aggressive rate hikes in recent months in an effort to curb price increases by slowing the economy and dampening demand. But the approach threatens to send the US into an economic downturn and put millions out of work.
The interest rate hikes seem to have slowed down key sectors of the economy, pushing up mortgage rates, for example, and slowing down the construction of new homes.
But other indicators suggest that the US economy continues to hum. According to data released by the Bureau of Labor Statistics in early September, the number of workers in the US declined at a breakneck pace, but remained robust in August.
Speaking at a conference held by the conservative-minded Cato Institute, Fed Chair Jerome Powell said Thursday that the central bank must act “outright and forcefully” to push inflation back, leading many economists to expect another 75 basis point hike in the interest rate. central bank later this month.
The Fed is doing a “delicate balancing act,” said Scott Schuh, an economics professor at West Virginia University. “The Fed is raising interest rates, but trying to prevent a rise in unemployment.”
“It seems reasonable to expect inflation to continue to decline over the coming months and quarters,” he added.
Prices have already fallen significantly in some parts of the economy.
The national average price for a gallon of gas stood at $3.72 Monday, after falling well below a peak of $5.01 in mid-June, according to AAA.
Consumer inflation expectations have also fallen significantly, according to data released Monday by the New York Federal Reserve.
In August, the median consumer response showed that they expect inflation to fall to 5.7% in one year and 2.8% in three years, a survey by the Federal Reserve in New York found. Those numbers fell from 6.2% and 3.2% respectively in July.
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