Skyrocketing Gas Costs Could Ramp Up US Inflation This August

WASHINGTON, Sept 13 - The U.S. has seen a notable uptick in consumer prices, with August recording the highest rise in over a year, largely influenced by the surge in gasoline prices. However, the anticipated modest rise in core inflation may lead the Federal Reserve to maintain the current interest rates in the upcoming meeting.

The Labor Department is set to unveil the consumer price report shortly before the Federal Reserve's rate-setting decision. This report comes close on the heels of data which indicated a relaxation in the job market for August.

The core inflation, which excludes the often unpredictable food and energy sectors, has been relatively steady for the past three months. Analysts predict that the year-over-year growth might be the least we've seen in almost two years.

Sam Bullard from Wells Fargo noted, "We're looking at a scenario where the overall inflation goes up due to gas prices, but the core inflation remains stable. While the Federal Reserve will be pleased to see the ongoing consistency in core inflation, there's room for improvement."

A recent survey suggested that the consumer price index likely went up by 0.6% in the past month. If true, it'd be the most significant leap since June of the previous year, coming after two consecutive 0.2% monthly increases.

In August, the surge in gasoline prices was evident, reaching nearly $4 per gallon, showing a significant increase from July's prices. Concurrently, food prices have been moving upwards at a steady rate.

Analysts predict that the Consumer Price Index for the year up to August might show a 3.6% hike, which is slightly more than the 3.2% increase seen in July. Even though this indicates an uptick, it's worth noting that it's less than the massive 9.1% seen in June 2022. For context, the Federal Reserve aims for 2% inflation.

The core CPI, when food and energy are excluded, is predicted to see a 0.2% rise for the third consecutive month, partly influenced by the dropping prices of used vehicles. On the flip side, even though rent prices have been going up, this trend might soon see a cool down as more housing options become available.

For the year leading up to August, the core CPI might register a 4.3% rise, which would be the smallest year-on-year surge since September of the previous year, after a 4.7% spike in July.

The finance world is confident that the Federal Reserve will keep its policy rate stable next week. However, the details on service-related inflation might pave the way for a potential rate hike later this year, given that certain sectors like airlines and hotel accommodations saw prices rebound due to high demand in summer.

A few financial experts foresee potential inflation risks due to factors such as increasing insurance charges, particularly for cars. Additionally, changes in the way the Labor Department measures health insurance costs could influence future reports.

Goldman Sachs' economist, Ronnie Walker, mentioned in a note, "We anticipate an increase in core CPI, especially in services excluding housing, in the upcoming months, but also expect a slowdown by next spring."

Lastly, the auto industry could experience disruptions due to potential strikes, which may push vehicle prices upwards. The United Auto Workers members recently showcased their willingness to go on strike against major companies like General Motors, Ford, and Stellantis if certain wage and pension disagreements aren't resolved soon.

James Knightley of ING in New York commented on the situation, "While the housing and rent trends can potentially help stabilize core inflation, these external factors make the future uncertain."

Source : Reuters (Reporting by Lucia Mutikani)