Mixed Signals: Inflation Slows to 3-Year Low, Yet Essential Costs Rise

The pace of price increases overall is slowing. But the costs of some key essentials remain stubbornly high, and they ticked higher in August.

The Bureau of Labor Statistics announced Wednesday (Sept. 11) that the Consumer Price Index (CPI) increased 2.5% over August 2023 levels, and the pace of annualized price increases was a notch below the July reading of 2.9%.

We’re at the slowest inflationary pace seen in three years, and on a month-to-month basis, the overall index was up 0.2% in August. The moderating pace may give further confirmation to the Federal Reserve that a rate cut is in order for September, and we may see some additional rate cuts into next year. The pace and the measure of those cuts are still open to debate, and it must be noted that the annual inflation rate is still beyond the central bank’s target rate of about 2%. The broader stock market sank Wednesday at the start of trading.

Where Prices Remain Lofty

In terms of individual line items, the data showed that shelter was up 5.2% on an annualized basis, increasing from July. As measured on a month-over-month basis, the shelter index surged 0.5%, accelerating from the 0.4% pace seen in the June to July timeframe.

Food inflation moderated, but there are some puts and takes. The food index’s prices were up 2.1% annualized. Groceries helped tamp down the inflationary pace here, as overall prices were flat in August, measured month over month. That’s a reversion to recent trends, as previous months saw month-over-month increases of about 0.1% through the summer.

Dining out? Well, that’s gotten more expensive. The measure of food consumed away from home was up to 0.3% as measured in August, up from July’s monthly 0.2% push higher. On an annualized basis, the measure was up 4%.

Elsewhere, the cost of getting away from it all was also higher, as the airline fares index rose 3.9% in August after declining in each of the previous five months.

As far back as last year, PYMNTS reported that overall, consumers spend roughly a quarter of their paycheck on the essentials. The percentage rises to about three-quarters of take-home pay for the most financially pressed consumers.

There have already been some indications of pressures in the dining-out sector. Most customers living paycheck to paycheck are trading down or cutting back when it comes to gathering at the local eatery with families and friends. The Wednesday data, with sticky inflation at restaurants, is unlikely to change that.

Separate data released by the Fed this week noted that consumers have loaded up on revolving debt on credit cards, and that debt is 25% above pre-pandemic levels.

Median household spending growth expectations increased by 0.1 percentage points to 5%, the Fed estimated Monday (Sept. 9), but if shelter and dining out remain pricey (and get more expensive), the read-across is that there’s less money to spend on other things such as apparel or electronics headed into the fall months and the holiday shopping season.