U.S. inflation slowed to 8.3% in August amid lower gas prices

Even if U.S. inflation peaks, economists expect it could take two years or more to fall back to something close to the Fed's annual two per cent target.

Sharply lower prices for gas and cheaper used cars slowed U.S. inflation in August for a second straight month, though many other items rose in price, indicating that inflation remains a heavy burden for American households.

Consumer prices surged 8.3 per cent in August compared with a year earlier, the government said Tuesday. Though still painfully high, that was down from an 8.5 per cent jump in July and a four-decade high of 9.1 per cent in June. On a monthly basis, prices rose 0.1 per cent, after a flat reading in July.

Excluding the volatile food and energy categories, so-called core prices jumped 0.6 per cent from July to August, higher than many economists had expected and a sign of inflation’s persistence.

Inflation remains far higher than many Americans have ever experienced and is keeping pressure on the Federal Reserve, the agency tasked with keeping prices stable. The Fed is expected to announce another big increase in its benchmark interest rate next week, which will lead to higher costs for many consumer and business loans.

Inflation has escalated families’ grocery bills, rents and utility costs, among other expenses, inflicting hardships on many households and deepening gloom about the economy despite strong job growth and low unemployment.

Even if inflation peaks, economists expect it could take two years or more to fall back to something close to the Fed’s annual two per cent target. The cost of rental apartments and other services, such as health care, are likely to keep rising in the months ahead.

Republicans have sought to make inflation a central issue in the midterm congressional elections. They blame President Joe Biden’s US$1.9 trillion stimulus package passed last year for much of the increase. Many economists generally agree, though they also say that snarled supply chains, Russia’s invasion of Ukraine and widespread shortages of items like semiconductors have been key factors in the inflation surge.

Yet the signs that inflation might have peaked — or will soon — could bolster Democrats’ prospects in the midterm elections and may already have contributed to slightly higher public approval ratings for Biden. In his speeches, Biden has generally stopped referring to the impact of high prices on family budgets. He has instead highlighted his administration’s recent legislative accomplishments, including a law enacted last month that’s intended to reduce pharmaceutical prices and fight climate change.