The Labor Department recently released consumer price index (CPI) data for August, which rose 0.4 percent. That marks the third month that the CPI increased since the pandemic caused consumer prices to fall from March until June.
Used car and truck prices drove up the CPI last month considerably, with prices rising 5.4 percent, the highest gain in nearly 50 years.
“Consumer prices are rebounding from the pandemic shock, but as supply shortages are resolved, upward price increases should moderate,” said Kathy Bostjancic, chief U.S. financial economist at Oxford Economics in New York. “The Fed’s new policy objectives underscore that monetary policy will remain very accommodative for a considerable time.”
The Labor Department’s report also indicated a rising inflation rate, a good sign since the Fed expressed concern over deflation and slow growth. Chairman Powell outlined the central bank’s plan last month to relax inflation restrictions, meaning the Fed could let inflation reach higher than the pre-pandemic two percent benchmark.
Prices for used cars dropped back in May after Hertz filed for bankruptcy. The company put its rental vehicles on the market for sale or lease, bolstering the supply of used cars.
Food prices have remained high as shortages reduce the supply of certain products, and consumers continue to choose grocery shopping over eating out.
Still, almost 30 million Americans are receiving unemployment benefits. Congress has yet to pass new legislation extending benefits or providing another stimulus check, which has kept prices from growing more.
Reuters polled economists who predicted the CPI to climb a modest 0.3 percent in August, meaning consumer prices rose higher than expected.
Although rising prices could be a signal of more economic activity, it also means higher prices even for those struggling to get by.
“For the individual worker, rising inflation is not good news, no matter what the Fed thinks,” said Joel Naroff, chief economist at Naroff Economics.
Along with the CPI, the Fed uses the core personal consumption expenditures (PCE) price index as a more accurate inflation measure. Still, that data will not be released until later this month.