Consumer prices eased in August for the second-straight month as declines in energy prices offset increases in food and shelter indexes. Despite this slight improvement, inflation remains above an 8% year-over-year rate for the sixth straight month. The food index recorded its largest annual gain since May 1979 as all six major grocery store food group indexes increased. Though it is likely that both core PCE and CPI measures of inflation have peaked, the Fed is expected to remain aggressive with respect to tightening monetary policy.
The Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) rose by 0.1% in August on a seasonally adjusted basis after being unchanged in July. The price index for a broad set of energy sources fell by 5.0% in August as a decline in gasoline (-10.6%) offset an increase in electricity (+1.5%) and natural gas index (+3.5%). Excluding the volatile food and energy components, the “core” CPI increased by 0.6% in August, following an increase of 0.3% in July. Meanwhile, the food index increased by 0.8% in August, the smallest monthly increase since December 2021.
Most component indexes continued to rise in August. The indexes for shelter (+0.7%), medical care (+0.7%), motor vehicle insurance (+1.3%), household furnishings and operations (+1.0%), new vehicle (+0.8%) and education (+0.5%) showed sizeable monthly increases in August. Meanwhile, the indexes for airline fares (-4.6%), used car and trucks (-0.1%) and communication (-0.2%) declined in August.
The index for shelter, which makes up more than 40% of the “core” CPI, rose by 0.7% in August, following an increase of 0.5% in July. The indexes for owners’ equivalent rent (OER) and rent of primary residence (RPR) both increased by 0.7% over the month. Monthly increases in OER have averaged 0.7% over the last three months. More cost increases are coming from this category, which will add to inflationary forces in the months ahead. These higher costs are driven by lack of supply and higher development costs. Higher interest rates will not slow these costs, which means the Fed’s tools are limited in addressing shelter inflation.
During the past twelve months, on a not seasonally adjusted basis, the CPI rose by 8.3% in August, following an 8.5% increase in July. The “core” CPI increased by 6.3% over the past twelve months, following an 5.9% increase in July. The food index rose by 11.4% and the energy index climbed by 23.8% over the past twelve months.
NAHB constructs a “real” rent index to indicate whether inflation in rents is faster or slower than overall inflation. It provides insight into the supply and demand conditions for rental housing. When inflation in rents is rising faster (slower) than overall inflation, the real rent index rises (declines). The real rent index is calculated by dividing the price index for rent by the core CPI (to exclude the volatile food and energy components).
The Real Rent Index rose by 0.2% in August. Over the first eight months of 2022, the monthly change of the Real Rent Index increased by 0.1%, on average.