Inflation accelerated in the United States in August for the second month in a row, driven largely by increases in gasoline prices at the pump – bad news for Joe Biden, who is seeking a second term in the White House.
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The consumer price index rose to 3.7% year-on-year, compared with 3.2% in July, according to the Consumer Price Index released by the Labor Department on Wednesday. At 0.6% over a month, compared to 0.2% in July.
Prices continued to slow for a year after peaking at 9.1%. But they began rising again for the second month in a row, driven by gasoline prices, which accounted for “more than half of the increase” in the monthly index, the Labor Department explains.
Joe Biden, who is hoping for re-election in 2024, is trying to convince that it is his economic policies that made it possible to slow down the rise in prices last year and that this upswing cannot be his fault.
“Inflation has fallen significantly over the last year, but I know that the rise in gasoline prices last month has put a strain on family budgets,” he commented in a statement.
“That’s why I remain focused on reducing energy costs, including investing in clean energy to strengthen our energy security,” the Democratic president added.
But behind this renewed rise in inflation lies a more encouraging number: so-called core inflation, which excludes energy and food prices. Certainly it accelerates slightly over a month to 0.3% compared to 0.2%, but it slows over a year to 4.3% compared to 4.7% in July.
Despite the increase in gasoline prices in August, energy prices have fallen by 3.6% since August 2022.
Egg prices, whose rise was one of the symbols of these years of inflation, fell by 18.2% in a year. That of used cars by 6.6% and that of smartphones by 17.2%. Airline ticket prices fell by 13.3%.
And inflation is likely to continue its downward trend in the coming months, expects Nancy Vanden Houten, an economist at Oxford Economics.
“A slowing economy, more flexible labor market conditions and moderate wage growth will lead to a further slowdown in inflation,” she said in a note.
Especially as the budgets of millions of American households will be further tightened starting in October as they must begin repaying their student loans again after a more than three-year pause due to the COVID-19 crisis.
These numbers will be closely watched by Fed officials meeting next Tuesday and Wednesday. They will have to decide whether to raise interest rates again in the hope of keeping inflation down in the long term, or to leave them at current levels so as not to cause too much of a slowdown in economic activity.
And “this data supports (…) the maintenance of interest rates,” said Rubeela Farooqi, an economist in high-frequency economics.
The key interest rate is now in a range of 5.25% to 5.50%, the highest level in 22 years, after being raised 11 times since March 2022.
However, the Fed prefers another measure of inflation, the PCE index, which also climbed to 3.3% over a year in July and which it wants to bring back to around 2.00%.
Consumer purchasing power declined last year. Inflation caused real incomes in the U.S. to fall by 2.3% in 2022 even as wages rose sharply, the Census Bureau said Tuesday.
There is actually a severe labor shortage in the United States, which has driven up wages and fueled inflation.
However, an influx of new workers in August pushed the unemployment rate up to 3.8%, a sign that the situation is calming down after two years of labor shortages, a development that should calm inflation.