Rising food prices pushed annual inflation to 8.3% in August

Despite plummeting gasoline prices in August, consumers still faced a 13.5% increase in food and grocery prices from a year ago. It was the 15th straight month of increases, according to a Tuesday, Sept. 12 report from the U.S. Bureau of Labor Statistics.

Consumer prices rose 8.3% in August from a year ago. While the CPI was down from 8.5% in July, rising food prices dashed hopes that inflation had peaked.

“This is a much worse CPI report than anyone expected,” said University of Michigan economist Justin Wolfers. “Basically, last month’s optimism was countered by this month’s pessimism.

Wolfers said lower fuel prices will be positive for consumers as fuel prices topped highs set in June, falling 7.7% in July and 10.6% in August. Gasoline prices are still 25.6% higher than they were in August 2021. He said persistently rising food prices are a major problem as consumers have to go back to 1979 to see such high prices.

The BLS said the price index for grains and bakery products rose 16.4% on the year. Other large grocery store food groups posted increases ranging from 9.4% for fruits and vegetables to 16.2% for dairy and related products. Core inflation figures, excluding food and fuel, also rose 0.6% in August from the previous month. Shelter/housing costs rose 0.7% in August after rising 0.5% in July. Rising rents are the main reason why housing costs are 6.2% higher than in August 2021.

The energy services index rose 2.1% in August from July and 68.8% from a year ago. Natural gas utility prices are up 33% from a year ago. Additionally, medical care costs rose 0.8% in August and 5.6% year-over-year.

Consumer spending remained resilient through the summer months despite record prices. While retailers like Walmart recently said consumers are swapping out certain items and seeking more value on everything from food to back-to-school necessities, Goldman Sachs analysts recently noted they expect household cash flow picks up after the Christmas holidays.

After a year-long decline, household cash flow will start to rise again after Christmas and accelerate through the new year, according to the Goldman Sachs research note. Jason English, consumer goods analyst at Goldman Sachs, expects household earnings to reverse a year of negative growth of $600, or 4.2%, in household discretionary cash flow. He said the gains will be small to start in early 2023 and accelerate through the year. He said the main driver of improved household cash flow in 2023 will be wages.

Mark Zandi, chief economist at Moody’s Analytics, also said consumer cash flow should improve as fuel prices moderate. He said the job market also remains strong as employers are unlikely to cut jobs as they know their biggest problem is finding talent.

U.S. retail sales are up about 10% over the past year, but most of that reflects higher costs for gasoline and other goods sold at inflated prices, the BLS reports. .

The Federal Reserve Bank of New York reports that consumer expectations in August reflected a sense that high fuel prices will be the norm for the foreseeable future, with food prices continuing to rise 5.8% from a year earlier. on the other. The survey measured some optimism about lower gasoline prices, but not to last year’s levels. While survey respondents said they expect inflationary pressures to ease in early 2023, they expect the cost of living to continue to rise.

Respondents said that credit is more difficult to access. Those who say it is now harder to get credit have peaked, with 57.8% saying it is either harder or much harder, the New York Fed reported. Additionally, those expecting to miss a minimum debt payment over the next three months rose 12.2%, a 1.4% gain that was the highest since May 2020.