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Has Inflation Peaked? Prices Rose 5.3% In August—Breaking Streak Of Pandemic Highs

Topline

Consumer prices rose 5.3% over the 12 months ending in August, according to data released Tuesday by the Labor Department, marking the first monthly decline since the beginning of the pandemic and one of the first signs recent price spikes—at nearly 13-year highs—may finally be peaking.

Key Facts

Overall prices rose 0.3% from July—lower than the 0.4% increase economists were expecting, while the core price index, which excludes volatile energy and food prices, rose 0.1%—its smallest increase since February.

The Tuesday figure marks the lowest annualized inflation reading since a 4.2% jump in April, and a slight decline from July’s increase of 5.4%, which was the highest figure since August 2008.

Still, the inflation reading is markedly higher than the Federal Reserve’s long-standing annual target of roughly 2%.

Contributing to the year-over-year increase, the indexes for gasoline, household furnishings, food and shelter all rose more than the average in August, with gas prices rising 2.8% on a monthly basis, while food prices ticked up 0.4%.

Over the past year, gas prices have risen a staggering 43% after plunging more than 30% when the pandemic first tanked domestic travel demand last spring.

In a Tuesday morning note, market analyst Adam Crisafulli, founder of Vital Knowledge Media, said the August figure provides “further evidence that domestic inflation has likely peaked,” adding that the knee-jerk reaction in stocks will likely be positive as investors rally around the moderating indicator.

Key Background

As markets crashed at the height of pandemic uncertainty in March 2020, Fed Chair Jerome Powell pledged to use the Fed’s “full range of tools to support the U.S. economy” until “substantial further progress” is made toward a full economic recovery. Since then, concerns that the government’s heightened spending could spur problematic inflation have triggered bouts of stock-market volatility, but the Fed has repeatedly insisted prices should cool off once industries hardest hit by the pandemic, including leisure and travel, readjust to meet higher consumer demand as the broader economy recovers. Tuesday’s data helps bolster the central bank’s case, but Crisafulli notes it may be too early to rally around the August inflation report, adding prices are “still elevated on an absolute basis.”

Tangent

Released on Monday, a New York Fed survey for August showed a further rise in inflation assumptions among consumers, with 0ne-year expectations jumping 0.3 percentage points to 5.2%.

What To Watch For

The Fed is sure to weigh in on the new inflation reading at its next monetary policy meeting, which will be held on September 22.

Further Reading

Inflation Keeps Up Summer Surge, Matching Recent Record (Forbes)

Meet The Inflation Profiteers (Forbes)

Bacon, Gas, Cars: Here’s Everything Getting More Expensive As Inflation Spikes (Forbes)

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