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August Consumer Prices Rose On Higher Food, Energy Costs

Thu, 09/15/2011 - 8:57am

Consumer Prices Rose 0.4 Percent in August on Higher Food and Energy Costs

The Bureau of Labor Statistics reported that the consumer price index (CPI) rose 0.4 percent in August, building on last month’s 0.5 percent increase. Once again, higher energy costs led the way, up 1.2 percent for the month. While gasoline prices fell in May and June, they remain elevated, with overall energy costs up 18.4 percent and gasoline prices up 32.4 percent since last year. Food costs also rose, up 0.5 percent for the month and 4.6 percent for the year. Grocery items for the home increased even more (0.6 percent and 6.0 percent). Core inflation – which excludes food and energy costs – rose 0.2 percent.

For the month, the largest price increases were seen in apparel, cereals, dairy products, fats and oils, gasoline, sugars and used car and trucks. Those items with price declines included lodging, nonalcoholic beverages, personal care products, personal computers and peripheral equipment and video and audio products.

Overall, these numbers suggest that consumers are continuing to be squeezed by higher prices, particularly for energy and food. These higher costs are raising overall core inflation, which was up 2 percent year-over-year, albeit still to moderate levels.

Persistent inflation (even if moderate) will undoubtedly make the decisions of the Federal Reserve that much harder as it weighs whether to aggressively tackle inflation or unemployment. Given recent statements from the Fed, it appears to be considering new policies to pump up the economy (e.g., “Operation Twist”) – a sign that it continues to be more worried about a slowing economy than about inflation. Policymakers will closely watch the Fed’s activities on September 20 and 21 to see what actions, if any, that it will take.

Chad Moutray is chief economist, National Association of Manufacturers.

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