Gas Prices Push Up August Inflation Rate

Written by: Alan Edwards

Economists were expecting a .05 increase in the Consumer Price Index for August, 2012 and were a bit surprised when their estimates were exceeded. According to the United States Labor Department, the number reported on September 14th, 2012 was twenty percent higher at 0.6 percent. This was the largest increase recorded in three years.

However, economists were quick to point out that gasoline prices accounted for a full 80 percent of the increase and by mid-September were already headed back down. In fact, gas prices jumped by the highest amount since June 2010.

The less volatile components of the CPI rose at a very small rate – increasing by only 0.1 percent. This core CPI, which excludes energy and food had an annual August 2012 to August 2012 of 1.7 percent which was well within the Federal Reserve’s target for core inflation of 2.0 percent.

This means that yesterday’s announcement of further easing of credit by the Federal Reserve will not be rescinded as QE3 is hoped to stimulate the economy. When announced yesterday, QE3 was the main cause of the stock market advancing sharply.

Chairman of the Federal Reserve Ben Bernanke stated his belief that inflation would continue to be close to the target of the Federal Reserve explaining that longer-term inflation expectations currently are very stable and are forecast to remain that way.

Overall inflation for August 2012 was defined by a 9.0 percent increase in gasoline prices, on the heels of a 3.0 percent increase in July. Gulf of Mexico storms, broken pipelines and refineries switching to winter blend gasoline were all part of the perfect storm leading to budget busting increases at the gas pump. The average gallon of gas rose by 28 cents in August, impacting household budgets. However, gas prices are showing signs of falling – how much remains to be seen.

Food prices rose by 0.2 percent following a July 2012 increase of 0.1 percent. Economists are predicting that food prices will rise greatly as a result of this year’s drought in the United States that has already pushed the price of corn and soybeans much higher. It takes several months for these major agricultural staples to work their price increases through the food chain.

Following five straight months of increases, clothing prices fell by 0.5 percent giving consumers a break on back-to-school shopping.

New cars rose by 0.2 percent following a 0.1 percent dip in July and used motor vehicles fell by 0.9 percent, following a 0.5 percent fall in July.

The cost of housing increased by 0.3 percent, the biggest increase since November, 2008.

For the 12 month period ending August, 2012 the core CPI rose by 1.9 percent. This was the smallest increase since July of 2011.


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Gas Prices Push Up August Inflation Rate

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