Inflation declined in August, but prices still remain high

Inflation dropped for the second consecutive month in August, but prices remain at around a four-decade high as food and housing expenses continue to rise.

In the preceding 12 months, the Consumer Price Index grew by 8.3% as increasing costs for food, lodging, and medical care were offset by falling fuel prices. The most recent inflation report indicates a small decrease from July’s 8.5% increase, but it was greater than experts had anticipated, indicating that prices remain uncomfortably high.

The core CPI, which excludes volatile food and fuel costs, increased by 6.3% in August, up from 5.9% in July.

“Price levels continue to increase, they aren’t slowing down month-over month (e.g. accelerating, not decelerating) and this inflation problem isn’t going away quietly,” Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, said in a note.

As a result, the S&P 500 fell more than 3 percent during morning trade. The Dow fell 2.7%, while the Nasdaq fell 3.9%.

Adobe reported earlier this week that internet prices increased unexpectedly last month, led by clothes, personal care, and groceries.

“Unpleasant surprises aplenty are found in the August Consumer Price Index,” noted Mark Hamrick, senior economic analyst at Bankrate, in an email. “The prices for necessities continue to fuel this fire, including shelter, food, and medical care.”

He added, “The substantial decline in gasoline prices is noteworthy but doesn’t address the overall problem with inflation.”

Nonetheless, shoppers anticipate additional price reductions later this year. A study released by the New York Fed on Monday showed that consumers don’t expect home prices to go up in 2023. This backs up Goldman Sachs’ prediction that home prices will stay the same.

In addition, it is anticipated that the Federal Reserve will continue to raise its benchmark interest rate when it meets later this month. This year, the central bank has hiked the federal funds rate four times in an effort to slow the economy and stop inflation from ballooning out of control. Economists anticipate another 0.75 percentage point increase at the September Fed meeting.

“The Fed was already in a hawkish mood and this data release will do nothing to deter that,” Paul Ashworth, chief U.S. economist at Capital Economics, said in a note. “Nevertheless, with inflation expectations almost back down to normal levels … we still expect both headline and core inflation to fall more quickly over the next 12 months than officials currently believe.”