The Bureau of Labor Statistics’ latest inflation report comes out Wednesday morning and is expected to show that consumer prices rose steadily in August.
Economists expect the data to show an overall rise in inflation of 3.6% compared to last year. That would be the second time since July that annual inflation has trended upward after 12 consecutive months of declines.
On average, experts expect core inflation to rise 4.3% year-on-year, a measure of cost increases that offsets energy and food prices, which tend to be more volatile.
The Federal Reserve has recently focused on core inflation to contain inflation.
Overall, the central bank’s efforts appear to have borne fruit. Headline inflation was 3.2% in July compared to July 2022, while core inflation was 4.7%.
Sarah House, a senior economist at Wells Fargo, said inflation is starting to decline but was higher in August due to cuts in oil production that have led to higher gasoline prices.
“The most important [Wednesday] “This is not just what’s happening in terms of core pressures, but what the drivers are beneath the surface,” House said in an interview, referring to the inflation metric that excludes food and energy prices.
“It seems like the momentum is there for lower inflation. “We still have a lot of disinflationary pressure,” meaning that current economic conditions are helping to steadily reduce inflation.
Go carefully in the right direction
Inflation has slowed significantly since last summer, when rising prices for fuel, real estate and cars pushed values to a 40-year high. However, it is still higher than in the entire 2010s. It’s also well above the Federal Reserve’s stated 2% target.
“The monthly rate of change in both the headline and core CPI metrics has moderated significantly in recent months, but some of the usual trouble spots remain – accommodations and costs of auto insurance, maintenance and repairs,” wrote Greg McBride, the chief financial analyst for Bankrate. The CPI is the consumer price index.
Persistent inflation contributed to the dramatic rate hikes over the last year and a half. The Fed raised interest rates from just above zero in early 2022 to their current range of 5.25% to 5.50%. This is the highest value since 2001.
As financial institutions use the U.S. benchmark interest rate to set their own interest rates, mortgage and credit card interest rates are also at their highest in decades. Interest rates have been historically low since the 2007-2008 financial crisis, making it more difficult for individuals and businesses to borrow.
If the Labor Department report shows that inflation appears to be under control, it is more likely that the Fed will stop raising interest rates for now. That’s something investors and business leaders wanted to see because they fear sharp interest rate hikes could trigger a recession.
The aim of the Fed’s actions was to curb inflation by slowing the economy. Still, the labor market remained tight and wages continued to rise, with little sign that a recession was imminent.
“We expect the economy overall to hold up quite well given the most aggressive tightening cycle we have seen since the early 1980s,” House said.
However, there are signs that the economy is slowing, and the impact of rising interest rates on the economy may take a long time to be felt. And if inflation does not fall significantly, further interest rate increases could follow shortly.
“The economy is expected to grow significantly faster in the current quarter than in the first half of the year,” McBride wrote. “It won’t be quick to get core inflation to 2 percent.”