Cheaper gasoline likely dampened high US inflation for a second month

FILE - A driver delivers 8,500 gallons of gasoline to an ARCO gas station in Riverside, Calif., Saturday, May 28, 2022. (AP Photo/Damian Dovarganes, File)

FILE – A driver delivers 8,500 gallons of gasoline to an ARCO gas station in Riverside, Calif., Saturday, May 28, 2022. (AP Photo/Damian Dovarganes, File)


A sign that the painful inflation of the past 18 months may be gradually easing could come on Tuesday, when the government is expected to signal that the acceleration in US prices slowed in August from a year ago for a second straight month.

Economists predict the report will show prices jumped 8.1% from 12 months earlier, from a four-decade high of 9.1% in June and 8.5% in July, according to the provider of FactSet data. Sharply lower gasoline prices are behind much of the decline, along with the costs of used cars, plane tickets and clothing.

On a monthly basis – figures that the Federal Reserve, the agency responsible for fighting inflation, is watching more closely – consumer prices are expected to have fallen 0.1% in August. It would be the first outright decline in month-on-month inflation since May 2020 and would follow a flat reading in July.

Inflation has pushed up families’ grocery bills, rents and utility costs, among many other expenses, inflicting hardship on households and worsening the economy’s sluggishness despite strong job growth and historically low unemployment.

Still, signs that inflation may have peaked could bolster Democrats’ midterm election prospects and may have already contributed to slightly higher public approval ratings for President Joe Biden. In his speeches, Biden has generally stopped referring to the impact of high prices on family budgets. Instead, he pointed to his administration’s recent legislative achievements, including a law signed into law last month aimed at reducing pharmaceutical prices and tackling climate change.

Still, Republicans blame Biden’s $1.9 trillion financial rescue package, passed in March 2021, for contributing to higher prices. The legislation included a third stimulus check and improved unemployment benefits, bolstering consumers’ ability to spend.

Many mainstream economists generally agree, though they also blame supply chains, Russia’s invasion of Ukraine and widespread shortages of items such as semiconductors for fueling inflation. . In recent months, however, supply chain safeguards have eased significantly, as have chip shortages. Oil prices fell to around $88 a barrel from a high of $123 in March.

The average cost of a gallon of gasoline fell to $3.72 nationwide on Monday, from just over $5 in mid-June. And many companies are reporting signs that supply backlogs and inflation are beginning to fade.

Elaine Buckberg, chief economist at General Motors, said the pandemic disruptions to overseas semiconductor production, which reduced automotive production, “have largely dissipated and we are now in a much better position.” . Overall, supply chain disruptions, she said, have improved by about 80% from the worst days of the pandemic.

Grocery prices have been a particular sore point for many families. Over the past year, prices for meat, milk, and fruit and vegetables have soared in double digits. But executives at Kroger, the nation’s largest grocery chain, said lower prices for agricultural commodities like wheat and corn could slow rising food costs this year.

“We expect there to be some inflation flattening in the second half of the year,” Kroger chief financial officer Gary Millerchip told investors last week.

Still, despite signs of slowing inflation, the Fed is expected to impose another substantial hike in its benchmark short-term interest rate at its meeting next week. Most analysts expect policymakers to report a third consecutive three-quarter point hike, within a range of 3% to 3.25%.

Rapid Fed rate increases – the fastest since the early 1980s – typically drive up the costs of mortgages, auto loans and business loans, in an effort to slow growth and reduce the inflation. The average 30-year mortgage rate jumped to nearly 5.9% last week, according to mortgage buyer Freddie Mac, the highest figure in nearly 14 years.

Chairman Jerome Powell said the Fed will need to see several months of low inflation rates suggesting price increases fall back toward its 2% target before it can suspend its rate hikes.

The central bank is also closely tracking prices which exclude the volatile food and energy categories. So-called “core” inflation has also fallen from its peak, although it is expected to rise to 6.1% in August compared to a year ago, against 5.9% in July. On a monthly basis, economists expect core prices rose 0.4% in August – double what the Fed would prefer – from 0.3% in July.

Even though inflation has peaked, most economists don’t expect it to return to the Fed’s 2% target for at least two years, if not longer. Wages continue to rise at a healthy pace – before adjusting to inflation – which has increased demand for apartments as more and more people move on their own. A shortage of available housing has also forced more people to continue renting, intensifying competition for apartments.

Rising rents and more expensive services, such as medical care, are also keeping inflation high.

This story was originally published September 13, 2022 12:10 a.m.

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