Here's the inflation breakdown for August 2023, in one chart

0
123

Gasoline was priced from $4.29 a gallon at a fuel station in Virginia on Aug. 16, 2023.

Anadolu Agency | Anadolu Agency | Getty Images

Inflation rose in August on the back of higher gasoline prices, according to the consumer price index.

But there’s good news for Americans: That increase is likely temporary, economists said. Aside from energy, there are signs that inflation continued its broad retreat in August, they said.

“This should just be a temporary interruption of the downward trend,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.

“Broadly, we’re already seeing pretty clear signs the situation is approaching normal again,” he added.

Inflation measures how quickly prices are rising across the U.S. economy.

In August, the CPI increased 3.7% from 12 months earlier, up from 3.2% in July, the U.S. Bureau of Labor Statistics said Wednesday.

The rate has fallen from a pandemic-era peak of 9.1% in June 2022, the highest since 1981.

The CPI is a key barometer of inflation, measuring prices of anything from fruits and vegetables to haircuts and concert tickets.

How gas prices contributed to higher inflation

Gasoline prices jumped 10.6% in August, following a 0.2% increase in July, according to Wednesday’s CPI report. The BLS adjusts those numbers for seasonal trends.

Gasoline cost $3.84 a gallon, on average, as of Tuesday, according to AAA.

Gasoline was the largest contributor to inflation in August, accounting for more than half of the increase, according to the BLS.

The increase is largely attributable to dynamics in the market for crude oil, which is refined into gasoline, Hunter said. On Tuesday, oil prices hit their highest levels since November.

More from Your Money:

Here’s a look at more stories on how to manage, grow and protect your money for the years ahead.

Transportation costs — including gasoline — are the second-largest expense, after housing, for the average household, according to the U.S. Department of Labor’s consumer expenditures survey.

While rising gasoline prices may be challenging for consumers from a budgetary perspective, it’s unlikely they’ll be sustained beyond another month or two, Hunter said.

While gasoline prices have risen in the short term, they’ve declined 3.3% from a year ago.

‘Core’ inflation showed a ‘bump in the road’

When assessing underlying inflation trends, economists generally like to look at one measure that strips out energy and food prices, which tend to be volatile from month to month. The “core” CPI, a stripped-down version of the CPI, fell from 4.7% to 4.3% annually in August. This is a slight increase from the 0.2% monthly reading in July. The overall trend is positive. Rent inflation will continue to fall, say economists, because new monthly rent prices have “slowed very sharply” in the U.S. over the past year or so. However, such trends generally feed through to CPI data with a lag, Hunter said. That’s because new monthly rent prices have “slowed very sharply” in the U.S. over the past year or so, but such trends generally feed through to the CPI data with a lag, Hunter said.

Other “notable” contributors to inflation over the past year include motor vehicle insurance, with prices up 19.1% from August 2022; recreation, up 3.5%; personal care, up 5.8%; and new vehicles, up 2.9%, the BLS said. Conversely, easing price pressures for groceries — a “staple household expense” — has been a “bright spot” for consumers, said Greg McBride, chief financial analyst at Bankrate.

Inflation is multipronged and global

Inflation during the pandemic era has been a “complicated phenomenon” stemming from “multiple sources and complex dynamic interactions,” according to a paper published in May that was co-authored by Ben Bernanke, former chair of the U.S. Federal Reserve, and Olivier Blanchard, senior fellow at the Peterson Institute for International Economics.

At a high level, inflationary pressures — which have been felt globally — are due to an imbalance between supply and demand.

The pandemic snarled global supply chains and led prices to surge as the U.S. economy reopened. Basically, consumers unleashed pent-up demand while there was still a shortage of goods.

Scott Olson | Getty Images

Russia’s invasion of Ukraine in early 2022 exacerbated backlogs in the global supply chain and fueled higher prices for food, energy and other commodities.

Also, a hot labor market led employers to raise wages at the fastest pace in decades, feeding through to inflation, particularly in labor-intensive service industries.

Those trends have largely unwound, Hunter said. He said that wage growth was still “quite” high, but is now easing and the labor market in general is improving. “We’re still not there.” “