Fuel prices are no longer the only aspect of inflation as price hikes spread throughout the economy.
Fuel prices are no longer the only aspect of inflation as price hikes spread throughout the economy. For the better part of a year, many economists and policymakers believed that the main causes of inflation were food and gasoline prices. It was believed that once supply chains loosened and gas prices decreased, this would drop food prices and ease pricing pressures throughout the economy.
The consumer price index statistics for August, however, severely challenged that theory, with wider increases suggesting that inflation may be more enduring and entrenched than previously believed.
The fact that gasoline, which fell 10.6% for the month, wasn’t the cause of the increase is at least as significant. While the midsummer drop in energy costs has assisted in taming headline inflation figures, it hasn’t been able to allay worries that inflation will continue to be a concern for some time.
Increased inflation across the board
Instead of gasoline, food, shelter, and healthcare expenses rose in August, imposing a steep burden on those who could least afford it and creating significant concerns about the future of inflation.
“The core inflation figures were strong overall. According to Mark Zandi, chief economist at Moody’s Analytics, “the breadth of the high price rises, from new autos to medical care services to rent growth, everything went up strongly.” That part of the report was the most unsettling, in my opinion.
Indeed, for the month, both the cost of new cars and the cost of medical treatment climbed by 0.8%. Rents and other housing-related expenditures make up roughly a third of the CPI’s weighting, and they increased by 0.7% for the month. The cost of food has also been a pain.
The food at home index, a reliable indicator of grocery prices, rose by 13.5% last year, the most since March 1979. Prices for goods like eggs and bread kept skyrocketing, severely taxing household budgets.
The monthly increase of 0.8% for medical care services is the fastest monthly gain since October 2019. Veterinarian expenses increased by 0.9% on a monthly basis and by 10% on an annual basis.
Even typically declining items like clothing costs saw a little increase of 0.2%. In my opinion, if oil prices stay low and don’t increase again, there will be a significant slowing of inflation, Zandi added. I still believe that inflation will return to [the Federal Reserve’s 2% objective] by the beginning of 2024, but I do so with less certainty.
Positively, costs have decreased once more for items like fruit, coffee, and airline tickets. Consumers are becoming less concerned about inflation, according to a New York Fed survey issued earlier this week, even if they still predict the rate would be 5.7% in a year. There are also hints that the strains on the supply chain are reducing, which ought to at least have a disinflationary effect.
Possible increase in oil
The White House and the Fed have been pushing the idea of “transitory” inflation, but approximately three-quarters of the CPI stayed over 4% in year-over-year inflation, reflecting a longer-term trend that has debunked that theory.
The continued low cost of electricity is not a given.
Beginning on December 5, the United States and the other G-7 countries said they’ll start putting price caps on Russian oil exports, possibly triggering retaliation and late-year price hikes.
