U.S. Inflation Slows for 2nd Month But Remains Stubbornly High

U.S. inflation slowed for a second straight month on a sharp fall in gas prices, yet excluding energy most other items got more expensive in August, a sign that inflation remains a heavy burden for American households.

Consumer prices surged 8.3% in August compared with a year earlier, the government said Tuesday, down from an 8.5% jump in July and a four-decade high of 9.1% in June. On a monthly basis, prices rose 0.1%, after a flat reading in July.

But excluding the volatile food and energy categories, so-called core prices jumped 0.6% from July to August — up sharply from 0.3% the previous month and dashing hopes, for now, that core prices might be starting to moderate. In the 12 months ending in August, core prices jumped 6.3%, up from 5.9% in July. Rents, medical care services and new cars all grew more expensive in August.

Core prices typically provide a clearer read on where costs are headed than overall inflation does. Stock index futures tumbled on the worse-than-expected core figures, with many investors fearful that the Federal Reserve will now raise interest rates even faster in its drive to curb inflation.

Inflation remains far higher than many Americans have ever experienced and is keeping pressure on the Fed. The central bank is expected to announce another big increase in its benchmark interest rate next week, which will lead to higher costs for many consumer and business loans.

Even if inflation peaks, economists expect it could take two years or more to fall back to something close to the Fed’s annual 2% target. The cost of rental apartments and other services, such as health care, are likely to keep rising in the months ahead.

Next week, most Fed watchers expect the central bank to announce a third straight three-quarter-point hike, to a range of 3% to 3.25%. The Fed’s rapid rate increases — the fastest since the early 1980s — typically lead to higher costs for mortgages, auto loans and business loans, with the goal of slowing growth and reducing 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.

Chair Jerome Powell has said the Fed will need to see several months of low inflation readings that suggest price increases are falling back toward its 2% target before it might suspend its rate hikes.

Wages are still rising at a strong pace — before adjusting for inflation — which has elevated demand for apartments as more people move out on their own. A shortage of available houses has also forced more people to keep renting, thereby intensifying competition for apartments.

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