Rising Gas Prices Surged in August, Bumping Annual Inflation to 3.7%

Higher fuel prices are driving up the cost of living and complicating the battle against inflation.

The Consumer Price Index (CPI), a measure of inflation, rose 0.6% in August from July, the largest jump since June 2022, the Bureau of Labor Statistics said Wednesday. Gas prices, which surged 10.6%, were responsible for more than half of the increase. The inflation index has risen 3.7% over the last 12 months, up from the 3.2% annual increase reported in July.

While the gas-driven inflation uptick hurt consumer budgets, forcing cutbacks in other kinds of spending, the CPI report showed that longer-term inflation pressures were more subdued. “Core” inflation, which excludes prices for food and energy and tends to be less volatile, rose 0.3% in August. That’s just a tick above the 0.2% forecast by a survey of economists by Dow Jones Newswires and The Wall Street Journal, and the 0.2% increase in July.

That uptick in core inflation, which was driven by increases in prices for housing, new vehicles, air fare, and car insurance, is a setback from previous reports that have showed inflation slowing.

The mixed data could spur officials at the Federal Reserve to consider raising the benchmark fed funds rate at some point for a 12th time since the central bank began its campaign of anti-inflation rate hikes in March 2022, economists said. However, traders consider a rate hike at the Fed’s meeting next week unlikely, with markets pricing in just a 3% chance of a September hike, according to the CME Group’s FedWatch tool, which forecasts rate hikes based on fed futures pricing data. A November rate hike was more likely, at 39%.

"Inflation is like our ugly wart. It continues to persist, despite our best treatments, and means we may need a stronger medicine," wrote Sean Snaith, a professor of economics at the University of Central Florida, in a commentary.

Another risk: Those higher gas prices could deal the Fed a setback in its efforts to cool inflation by slowing the economy.

Gas prices surged this summer along with the price of the crude oil gas is made from, as oil-producing countries in the OPEC+ cartel, including Saudi Arabia, have cut their output. The average price of a gallon of gas nationwide jumped to $3.80 on Aug. 2 from $3.56 on July 16, according to data from AAA, and has hovered above $3.80 ever since. The restricted supply is likely to keep oil prices rising through the rest of the year, the Energy Information Administration (EIA) said in a report Tuesday.

“Oil price gains influence all manner of manufacturing and transportation costs, which ultimately get passed onto consumers over many months following any increase in oil prices,” PNC Senior Economist Kurt Rankin wrote in a commentary. “August’s stronger CPI inflation result may therefore be the first in a stretch of renewed upward pressure on consumer prices as high and still-rising oil prices make their way through the U.S. economy.”