U.S. consumer prices crept higher than economists were expecting in August, remaining near a four-decade high and solidifying larger rate hikes for the remainder of 2022.
Increases in shelter, food, and medical care were the largest contributors to the broad-based monthly increase. These increases were mostly offset by a 10.6% monthly decline in gasoline and a 5% monthly drop in energy prices, according to the report.
Core CPI, which removes the volatile nature of energy and food prices, saw a 6.3% annual increase and a 0.6% rise over the prior month. Economists had expected a year-over-year increase of 6.1% and a 0.3% monthly increase.
“Today’s inflation data cements a third consecutive 0.75% increase in the Fed funds rate next week,” Principal Global Investors Chief Global Strategist Seema Shah said in a note.
It would appear that headline inflation has peaked but core CPI is once again on the rise, confirming the sticky nature of U.S. inflation, Shah said, adding “until the Fed can tame that beast, there is simply no room for a discussion on pivots or pauses.”
The food index increased 0.8% in August, its smallest monthly increase since December 2021. Meanwhile, the food at home index rose 13.5% over the last 12 months, its largest 12-month increase since the period ending March 1979.
The energy component of the report fell 5.0% in August, following a 4.6% in July. The 10.6% decline in gasoline contributed to the month-over-month decrease in the energy index, despite a 1.5% rise in electricity and a 3.5% increase in natural gas.
The shelter index, which includes components such as rents and home prices, continued to rise in August, increasing 0.7% for the month compared to 0.5% in July. On a month-to-month basis, the cost of shelter had its most significant increase since 1991. The shelter index has risen 6.2% over the past 12 months and now accounts for roughly 40% of the broader index increases, excluding food and energy, according to the report.
The cost of medical care notably rose 0.7% in August after a 0.4% increase in July, with major medical care component indexes climbing across the board.
Altogether, while the indexes for shelter and medical care each increased by 0.7% month-over-month, household furnishings and operations increased by 0.1%, new vehicles by 0.8%, motor vehicle insurance by 1.3%, and education by 0.5%. The biggest monthly decreases were found in airline fares (-4.6%), communication (-0.2%), and used cars and trucks (-0.1%).
“Today’s CPI reading is a stark reminder of the long road we have until inflation is back down to earth,” Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office, told CNBC. “Wishful expectations that we are on a downward trajectory and the Fed will lay off the gas may have been a bit premature.”
Following the release of August’s CPI report, stocks, bonds, oil, and gold all began to experience a sharp sell-off. Nasdaq futures fell as much as 1.8%, S&P 500 futures were down 1.2%, and Dow futures dropped 0.9% shortly after the release.
Data from CME Group reports a 10% chance of a full percentage point hike at the next FOMC meeting on September 20-21, although most readings point toward a 75 basis point rate hike
“Monetary policy will need to be restrictive for some time to provide confidence that inflation is moving down to target,” Vice Chair Lael Brainard said last week, adding, “We are in this for as long as it takes to get inflation down.”
“While the moderation in monthly inflation is welcome, it will be necessary to see several months of low monthly inflation readings to be confident that inflation is moving back down to 2%,” the policymaker said.