Inflation continued to drift a bit lower last month but the descent from 40-year highs remains painfully slow.
Consumer prices increased 8.2% from a year earlier, down from an 8.3% rise in August and a four-decade high of 9.1% in June, as climbing food and rent costs again offset falling gasoline prices, according to the Labor Department’s Consumer Price Index.
Economists had estimated yearly inflation would drop to 8.1%.
On a monthly basis, consumer prices edged up a larger-than-expected 0.4% after a 0.1% increase in August.
But while overall inflation is softening, a key measure of underlying price gains hit a new historic high. Core prices, which exclude volatile food and energy items and generally provide a better measure of longer-term trends, increased 0.6% from August following a similar rise the previous month. That pushed the annual increase from 6.3% to 6.6%, a new 40-year high.
Generally, price increases for goods such as used cars and clothing are moderating, in part because supply chain troubles are easing, but the cost of services, including rent and medical care, have been rising dramatically.
Economists say the report will do little to dissuade the Federal Reserve from approving a fourth straight outsize hike in interest rates early next month to tame inflation.
Why are gas prices going back up?
Gas prices declined sharply for a third month on falling global demand for oil and recession worries. Pump prices slipped 4.9% from the previous month, but were still up 18.2% annually and have moved higher in recent weeks after OPEC announced oil production cuts.
Unleaded regular averaged $3.92 a gallon Wednesday, up from $3.72 a month ago, according to AAA, but it’s still down from about $5 in June.
Are food prices going to keep going up?
Grocery prices, though, rose by 0.7% from August and are up 13% over the past 12 months. Prices for commodities such as wheat and corn broadly have fallen in recent months but remain volatile in part because of Russia’s war with Ukraine, which has disrupted a region that exports a significant share of those crops. Barclays expects double-digital annual food inflation through January.
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Amber Flack, 45, of Pickerington, Ohio, has noticed the drop in gas prices but that hasn’t led her to return to her pre-pandemic spending habits because her grocery bill keeps climbing. She and her family are spending up to $1,000 a month on groceries, up from no more than $600 before the price surge. They now buy items such as canned vegetables, soda and paper towels in bulk, saving more than $100 monthly.
“I don’t love the need to buy in bulk to get a reasonable price but it’s what I do now,” she says.
They also drive less to save on gas, staying within a five-mile radius of home and haven’t take a vacation since before the health crisis. Previously, they took at least two big vacations a year.