Despite expectations that headline inflation would show a slight drop in August, the consumer price index went up 0.1 percent in August, and prices were up 8.3 percent from a year ago. 

<div class="block">Despite expectations that headline inflation would show a slight drop in August, the consumer price index went up 0.1 percent in August, and prices were up 8.3 percent from a year ago.&nbsp;</div><div class="block">After a zero percent month-over-month change in July, which was touted by the Biden administration as a sign that inflation was moderating, many economists were expecting the slowdownto turn into an actual pullback. However, the indexes for shelter, food, and medical care saw price increases, which were largely offset by falling gas prices.&nbsp;</div><div class="block">Food prices went up 0.8 percent. Shelter was up 0.7 percent, and medical care index was up 0.7, while gas fell by a whopping 10.6 percent. Energy overall fell 5 percent, even as electricity and natural gas ticked upward.&nbsp;</div><div class="block">One good sign: The increase in food prices was the smallest monthly increase this year.&nbsp;</div><div class="block">Core inflation, which cuts out food and energy, jumped 0.6 percent. That's double the rate from last month, showing that even without the most volatile categories, inflation is rising.&nbsp;</div><div class="block">Used cars actually saw a 0.1 percent decline, while new cars were up 0.8 percent.&nbsp;</div><div class="block">Overall, the report was an extremely mixed bag, and economists don't expect it to sway the Federal Reserve from moving forward with a large rate hike next week. </div>

 Inflation Rises Again in August, Defying Expectations

and here to discuss Kayla brunette economic analyst at morning consult. Thank you so much for joining us. Especially as we're just getting this data moments ago. I'm wondering what your reaction is to the C. P. I. Data. Hi good morning thanks for having me on. Um so as you said I was also expecting probably either flat or or a slight decline. So it was a little surprising to see the month over month increase in prices but given how much gas prices have fallen even so I wouldn't say that the big picture is too surprising. 8.3% vs 8.1%. That doesn't really change the fact that inflation is too high and that's something we were all expecting to see again A little bit more worrying. Is that kind of sizable increase in the core inflation measure which strips out the volatile energy and food prices. We actually had that increase to 6.3% up from 5.9% in July. Uh and that measure really kind of tracks a little bit more of a sticky view of of what's going on with prices. So that one was a little bit more worrying to see that increase. Yeah and as we talk about the total picture excluding energy, we also mentioned to your point following gas prices in august contributing to today's number. But given these energy concerns do you think it's valid to say we could potentially see inflation tick up in the upcoming winter months. It's definitely possible given what we're seeing with. As I sort of mentioned the core inflation one big component to always keep an eye on is the housing component sort of broken up into rent and owners equivalent rent. Uh Even though we're seeing housing prices and even potentially rents in other measures, we're seeing potential slowness there. Now that's a measure that tends to be very lagged and it has a very large impact on the overall consumer price index. So we could continue to see that shelter index continue to climb before it comes down and because that's just such a large share of the overall C. P. I. And the core CPI I that's something I'm really going to be watching in the next couple of months to see how that factors in what's been happening with prices because there could still be more of an increase before it comes down and catches up with what we're seeing right now with prices and kayla fed chair jerome Powell has been really clear that the bank won't stop until this job is done when we're talking about inflation. How do you think this data impacts how the Fed is looking at this picture now. What other indicators do you think they should be looking at when it comes to next week's meeting? Well, I'd imagine it's a little disappointing to see that we didn't make a bit more progress in august given the hopes that a lot of economists had for a slight decline but but again, I don't think that this changes the bigger picture of knowing that inflation is still going to be too high. 8.1% versus 8.3%. It's not a big difference in terms of policy implications, what is a little bit more positive and I think maybe kind of supporting the Fed in their in their mission to tame inflation is really what we've been seeing in the labor market, which has been pretty strong resilience in hiring. Uh not not a big increase in layoffs and actually an increase in labor force participation. We basically had a pretty positive jobs report recently and that's really our best hope of achieving the soft landing quote unquote. Um Where despite these relatively severe rate increases to tame inflation, we still might be able to manage kind of steering the ships safely to lower inflation without resulting in a huge increase in the unemployment rate. Let's hope so. And you mentioned this disappointing news for august and progress. How do you think this impacts the central bank's credibility throughout the past few meetings? And also moving forward here, it's definitely challenging to be in their shoes, just in that they're facing a very tricky situation with inflation this high and kind of the only choice they have to keep tightening policy. It's a risk, it's a risk they have to take. Um and they and they are taking it. I think they're doing their best to communicate their situation what they're expecting. Um and you know, they're they're they're doing what they can with a difficult situation. One other thing that might help them going forward is that we've seen some moderation in inflation expectations, which is a pretty important sign just because to some extent inflation expectation among consumers and businesses that can be a little bit of a self fulfilling prophecy. So uh that's something else I'd imagine that they're watching and it's it's a positive sign that inflation expectations are for inflation to continue slowing again. It's not quite where we want it to be, but it's heading in the right direction. Yeah. Despite some of the reaction from the market today, I think overall sentiment has will just a bit for consumers, but I want to focus on consumers for a moment, whether it's 50 or 75 basis points. The Fed is all but almost promised to raise interest rates now. So given this hourly wage picture in the labor market right now, what could higher interest rates mean for consumers in this current environment? Also at this point that we're heading into the fall and winter season, as we mentioned in my view, really, the biggest challenge facing consumers now is still inflation and what that means for purchasing power. This is something my team is tracking really closely at morning consult, we're really looking at the impact of inflation on consumer spending and especially heading into the holiday season, that's a lot of discretionary spending uh in most years. So, so the impact of what these higher prices will have on consumer budgets because if they're spending all all of their you know all of their earnings on essentials it's a little bit hard to know how strong of a holiday season they'll have given that a lot of that is discretionary. Um So we actually did see kind of an immediate uh marginal relief when gas prices fell especially among lower income groups and rural adults who have a higher allocation allocated to gas. So so we do see sort of a quick response in our data in in consumer purchasing power with the trajectory of prices. So heading into the holiday season that's something definitely to keep an eye on what is the trajectory of prices and how is that going to impact the way consumers are allocating their earnings in terms of spending. That's really interesting. I wish we could have an entire interview dedicated to just that and the holiday shopping season. But one more question before we let you go, what do you think the likelihood is now that the U. S. Could go into a recession for longer than expected at this point I would say with inflation as high as it is, the risks remain. The most positive sign that I've seen recently was really what I mentioned before with the job, the most recent jobs report and really all that we've seen in the labor market recently there's there's a lot of positive signals there, or at least moderately positive signals, so there is definitely still room for us to avoid a deep recession. Again, this, this CPI report today was not the best case scenario. It was a little bit more disappointing than we expected, but it wasn't too far off. And to me, it doesn't change the bigger picture of what's going on in the economy right now. All right, Kayla, brune economic analyst at morning consult. Thank you so much for breaking all that down for us.