In August, the consumer price index was 5.3% more than what it was a year ago. This is according to the data released a few days ago. It was a third consecutive month of inflation at a similar speed. The Federal Reserve's preferred measure is the personal consumption expenditures price rate. Using the trimmed-mean rate, inflation has remained at around 2%. This is close to the inflation target of the Federal Reserve. The gap between the consumer price index and the personal consumption expenditures price rate stands at the core of the argument whether this spurt of inflation is temporary or here for a long time.
The Consumer Price Index for urban buyers increased by 5.3% for one year ending August this year. This was a smaller growth than the 5.4% increase for one year ending July. The cost of all materials, less energy, and food increased by 4% over one year ending July. The energy prices increased by 25% over one year. The food prices grew by 3.7%. Both of these figures were higher than the growth for the year finishing in July. The cost for food at home increased by three percent over the year ending in August. The cost of the major grocery store food groups also grew over the year. Food prices away from home increased by 4.7% over the last year. The cost of limited-service meals increased by nearly seven percent. In comparison, the cost for full-service meals increased by nearly five percent.
The gasoline costs increased by 42.7% over the same period. Electricity prices grew by 5.2%. This was the biggest one-year growth since the year ending March 2014. The natural gas costs increased by 21.1% over one year. This was the biggest growth since the year ending August 2008. Used truck and car costs grew by 31.9%. The costs for new cars increased by 7.6%. This was the biggest one-year growth since the year ending June 1981. The costs for shelter grew by 2.8% over the same period. Medical care costs increased by 0.4%. The costs for physicians’ services increased by nearly four percent, and costs for hospital services grew by 3.5%.
"Even with a slowdown in monthly CPI gains, big year-over-year increases will persist until well into 2022," said Chris Low, chief economist at FHN Financial in New York. "The slowdown in sectors sensitive to the reopening is another piece of evidence for the transitory story of inflation, but steady increases elsewhere show that inflation should stick around even after those sectors adjust."
The consumer price index increased by 0.1% last month after excluding the volatile energy and food segments. This was easily the lowest gain in the past six months. There was a similar increase of only 0.3% in July this year. The core consumer price index also saw a decrease of 1.5% in the prices of used trucks and cars. This marked the end of five consecutive monthly increases.
"Inflation remains troublingly strong, even if it is not exploding as it did earlier in the year," said James McCann, deputy chief economist at Aberdeen Standard Investments in Boston. "If we continue to see further step-downs in inflation over the next six months, that should ease the pressure on the Fed to follow tapering with interest rate rises quickly." "The biggest upside risk to inflation in the next six months is from the potential pass-through of higher house prices to the CPI shelter component," said Bill Adams, a senior economist at PNC Financial in Pittsburgh, Pennsylvania.
It is not easy to tell you the time it takes to calculate a complete consumer-price index. In this nation, statisticians survey more than 90,000 people every quarter. They develop a sample of more than 75,000 things they purchase. Then, they monitor the prices by calling up thousands of offices, restaurants, and shops. So, the Bureau of Labor Statistics might feel a little offended that the Federal Reserve thinks it prudent to enable the biggest price swings in the market and offset the statistics. The consequent figure is known as trimmed mean inflation. The country has been facing the most sustained price pressure in the last three decades. Thus, the consumer price index becomes that much more critical.
The people who think it is temporary say that only some small factors have caused inflation. All of these factors are related to the pandemic. The price of flights increased as air travel resumed some time ago. But in August, the ticket prices decreased again as the coronavirus came back with the Delta variant. On the other hand, the personal consumption expenditures price rate stamps out such uncommon events and purportedly shows an accurate picture. Jerome Powell, the chairman of the Federal Reserve, has said that the measure is evidence that the price pressures are not broad-based yet.
A similar thing can be seen in other nations. In Britain, the consumer price index increased to 3.2% year-on-year in August. This was an increase from 2% in July. But that can be mostly attributed to a low base of comparison that existed a year earlier. This was when the government had subsidized meals in restaurants for a month. The trimmed mean is calculated by the National Institute of Economic and Social Research. It is a think-tank. It shows that Britain's inflation was only 1.6% in August. This was just more than July.
There are a couple of objections that arise in the mind when talking about the trimmed measure. One is that it is only cherry-picking. The Central bankers often show narrower core inflation to capture the wider trends. Previously, the Federal Reserve would show the PCE index while excluding the energy and food prices. But the measure increased to 3.6% year-on-year in July. This represented a high of three decades. So, there is a lingering suspicion that the trimmed mean can prove a good substitute for the consumer price index. But that can be seen to be a little unfair to the Federal Reserve. Central bankers have been studying the trimmed measure since much ahead of the coronavirus pandemic.
Federal economists released a research note a few years ago that found that trimmed-mean measures are not as volatile as the consumer price index and are better indicators of future price changes. The trimmed mean keeps its focus on the middle of the pack. This shows how widespread the pressures usually remain. Trimming also answers the usual argument that the consumer price index excludes energy or food prices. Energy and food prices are present in the trimmed indices. But this is on the precondition that their price swings should not be wild. The second objection is that the trimmed mean does not give flattering figures persistently. However you see it, it all looks pretty clear to everyone. The inflation right now is not as bad as the consumer price index is suggesting. But the price pressures are increasing gradually.
The consumer price index of August shows that the underlying consumer prices experienced the slowest growth in the past six months. The prices of used vehicles saw a decline. This shows that inflation has seen its peak. But it could remain at a high point for some time due to the continuing constraints in supply. The wider slowdown in the price pressures that the Labor Department showed is similar to the belief by the Federal Reserve chairman Jerome Powell. He believes that this high inflation is only temporary. But, economists have said that it is still too early to start celebrating. They expect the Federal Reserve to chalk out plans in the coming months to begin scaling back the huge bond-buying program, which happens monthly.