US inflation increased by 0.1% in August, despite a dramatic decline in gas costs.
According to the Bureau of Labor Statistics, inflation increased more than anticipated in August as rising housing and food prices partially offset a decline in gas prices.
The consumer price index, which measures the cost of a wide range of goods and services, rose 0.1% in the month and 8.3% in the previous 12 months. When volatile prices for food and energy were excluded, the CPI increased 0.6% from July and 6.3% from the same month in 2021.
According to estimates from Dow Jones, economists had predicted that core inflation would rise 0.3% while headline inflation would decline by 0.1%. Forecasts for the corresponding year-over-year increases were for 8% and 6%.
For the month, energy costs decreased by 5%, with the gasoline index falling by 10.6%. However, other increases more than compensated those reductions.
In August, the food index rose by 0.8%, while the cost of housing, which accounts for nearly one-third of the CPI’s weighting, increased by 0.7% and is now up 6.2% from a year earlier.
A significant rise in medical care services was also seen, reaching 5.6% from August 2021 and 0.8% on a monthly basis. Prices for new cars increased by 0.8% while those for used cars decreased by 0.1%.
Following the news, markets tanked, with futures linked to the Dow Jones Industrial Average falling roughly 350 points after rising earlier.
The two-year note, which is most closely correlated with changes in the Federal Reserve interest rate, increased by 0.13 percentage point to 3.704%, sending Treasury yields rocketing higher.
The markets had largely anticipated that the Fed will raise interest rates by 0.75 percentage points at its meeting next week. According to CME Group statistics, after the CPI statement, traders fully discounted the probability of a half-point shift and even priced in a 10% chance of a full percentage point increase.
The price of gas has fallen significantly after reaching a high of over $5 per gallon this summer. However, prices for other essentials like food and housing keep rising, prompting worries that formerly concentrated inflation is now starting to spread.
