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American inflation rose more than expected in August

Pedestrians carry shopping bags on Powell Street in San Francisco, California, US, on Wednesday, May 18, 2022. (Photo by David Paul Morris/Bloomberg via Getty Images)

(CNN) — US inflation ticked back up in August, despite plunging gas prices, according to data from the Bureau of Labor Statistics released Tuesday.

On a monthly basis, consumer prices rose 0.1% from July, according to the Consumer Price Index, which measures a basket of consumer goods and services. Economists had projected that inflation would fall from July to August by 0.1%, after holding steady at 0% growth from June to July.

Annual inflation eased for the second-straight month but also remained stubbornly high, with prices up 8.3% year on year, a slowdown from the 8.5% gain in July and the 40-year high of 9.1% in June. The last time the headline CPI rate declined in consecutive months was the first part of 2020.

Core CPI, which strips out the more volatile categories like food and gasoline, measured 6.3% in August, up from 6.2% in July. The month-on-month gain of 0.6% was double what economists had expected.

US stocks tumbled on the news, with the Dow shedding more than 800 points by midday. Investors worry that the Federal Reserve will have to take more drastic action to combat high inflation. A prolonged period of historic rate hikes could do serious damage to the US economy.

Historically high inflation remains a point of pain for many Americans, especially those with little wiggle room in their monthly budgets.

“We were hoping for something more positive, but [the August data] is not,” said Sung Won Sohn, an economics professor at Loyola Marymount University and president of SS Economics. “I think inflation is certainly alive and well.”

The volatile gasoline category was the only area of the index to show a significant decline from July, dropping 10.6%. Almost all other categories saw price increases, including shelter, which increased 0.7% in August and is up 6.2% year-on-year, the largest increase since 1991.

“If you look at the underlying trend — I look at labor costs and rent increases — they both are pointing in the wrong direction and going up at hefty paces,” Sohn said.

Tuesday’s report — especially core CPI — will be scrutinized by the Fed ahead of its policymaking meeting next week.

The Federal Reserve “won’t be happy until the job market and wage growth significantly moderate and core inflation falls back to its target,” said Mark Zandi, senior economist at Moody’s Analytics.

Annual price gains are a far cry from where they were 18 months ago and from the Federal Reserve’s target inflation rate of 2%.

“This is a fight we cannot, and will not, walk away from,” Fed Governor Christopher Waller said last week, underscoring the central bank’s laser focus on hitting its 2% goal.

The Fed has been tightening its monetary policy in recent months to help rein in the highest inflation in four decades, implementing back-to-back, super-sized rate hikes of 75 basis points.

The August inflation data pretty much cements a third-straight 75-basis-point rate hike, said Seema Shah, chief global strategist of Principal Global Investors.

“Headline inflation has peaked but, in a clear sign that the need to continue hiking rates is undiminished, core CPI is once again on the rise, confirming the very sticky nature of the US inflation problem,” she said, adding that 70% of the CPI basket is seeing an annualized price rise of more than 4% month on month.

“Until the Fed can tame that beast, there is simply no room for a discussion on pivots or pauses,” she added.