Inflation increased to 3.7% in August, posting the most significant month-to-month rise since June 2022, according to the Consumer Price Index (CPI) released by the Bureau of Labor Statistics (BLS).
The annual inflation rate rose in August, up from 3.2% in July, and it increased by 0.6% on a monthly basis, but economists largely anticipated the jump. Economists surveyed by Reuters were looking for respective increases of 3.6% and 0.6%.
Rising prices at the gas pump, which soared by more than 10% in August, were a major contributor to the monthly increase, accounting for more than half of the rise. Rising oil prices and the extreme heat in the Gulf Coast region, which slowed refinery and output activity, are why gas prices reversed course from previous months.
Prices for shelter and food also remained elevated. However, prices for shelter, which have risen for 40 consecutive months, posted its smallest increase since 2021.
How the Federal Reserve reacts to the August inflation data is unclear. On the one hand, there are signs that prices are moderating. This, coupled with a recent jobs report showing signs of cooling, could persuade the central bank to pause further interest rate hikes. However, Fed chair Jerome Powell said at the recent Kansas City Fed conference in Jackson Hole, Wyoming, that while inflation has moderated, it remained too high, and central bankers were prepared to tighten more if necessary.
"Given broad evidence of a cooling economy and the inherent uncertainty given the lag in the impact of monetary policy changes being readily apparent, signs of a continued easing could quickly shift the narrative away from further tightening and toward policy easing," Jim Baird, Plante Moran Financial Advisors chief investment officer, said in a statement. "That would seemingly require a more pronounced slowdown than that which the Fed has already baked into its projections, particularly given the consistent message from policymakers that they intend to hold rates higher for longer than many anticipate. To turn away from that would appear to require greater downside risk and a meaningful shift away from the soft landing hopes that have grown in recent months."
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Social Security beneficiaries will likely see a 3.2% increase in their monthly checks next year based on August's CPI, according to The Senior Citizens League (TSCL). A cost of living adjustment (COLA) of 3% would raise an average monthly benefit of $1,790 by roughly $57.30.
The Social Security Administration is expected to announce the COLA for 2024 in mid-October. August CPI data is essential because the COLA is calculated based on inflation during the third quarter, according to TSCL. Inflation for July, August and September are added together and averaged, then compared with the third quarter average from one year ago. The percentage difference between the two is the amount of the COLA, which would be paid to Social Security recipients beginning in January 2024.
A 3.2% increase is far below the record high increase of 8.7% received in 2023 but is still higher than the average 2.6% adjustment received over the past 20 years, according to TSCL.
"In 2023, retirees received the highest COLA in 40 years, but nobody is getting rich," TSCL said in a statement. "The reality is that the dollar amount of the COLA increase received is meager at best, with the average monthly retiree benefit only $1,790 in 2023."
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Sustained inflation isn't expected to slow retail shopping this upcoming holiday season, according to Deloitte's annual holiday retail forecast. Holiday retail sales are forecasted to increase between 3.5% and 4.6% and e-commerce sales will grow between 10.3% to 12.8% during the 2023 holiday shopping season.
The positive growth projections are based on the solid economic data that support a soft landing of the U.S. economy, according to Deloitte.
"We expect healthy employment and income growth to keep the volume of sales growing for the 2023 holiday season," Deloitte U.S. Economic Forecaster Daniel Bachman said. "Inflation, which accounted for much of the increase in the value of retail sales last year, should moderate. This means the total value of retail sales will grow more slowly than last year. Our forecast also reflects a decreasing pool of pandemic-era savings, both of which will weigh on retail sales and are reflected in our lower projected growth for the season."
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