Fed continues to lose fight against inflation as prices rise over 8%

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Inflation rose more than expected in August despite a drop in gas prices, the Bureau of Labor Statistics (BLS) reported today.

“The core inflation numbers were hot across the board. The breadth of the strong price increases, from new vehicles to medical care services to rent growth, everything was up strongly,” said Mark Zandi, chief economist at Moody’s Analytics. “That was the most disconcerting aspect of the report.”

The newly released Consumer Price Index (CPI) shows prices last month rose 8.3% from a year earlier. Prices climbed by 0.1% compared to July. The latest numbers can be attributed to rapid price increases for a “broad array of products and services, including food away from home, new cars, dental care and vehicle repair,” reports the New York Times.

The news pushed stocks down on Tuesday, largely erasing the gains made by this past week’s rally. “The CPI report was an unequivocal negative for equity markets. The hotter than expected report means we will get continued pressure from Fed policy via rate hikes,” said Matt Peron, director of research at Janus Henderson Investors.

Today’s CPI also means the Federal Reserve will likely continue to pursue deflationary policy. Officials at the Fed have pledged to continue raising interest rates as it continues its attempts to slow borrowing and reduce consumer demand.

“Inflation remains hot, financial conditions have seen some improvement and the labor markets are humming along,” Neil Dutta, head of U.S. economics at Renaissance Macro, wrote in a research note following the release. “If the goal is to slow things down and create some pain, the Fed is failing by its own standard.”

Certain cities have been hit particularly hard by rising prices. Inflation went up 13% in Phoenix last month, a record for any U.S. city in data going back 20 years. Atlanta saw annual inflation of 11.7%, while prices in Miami rose 10.7%, according to the BLS data.

“Inflation is far too high, and it is too soon to say whether inflation is moving meaningfully and persistently downward,” Christopher Waller, a Federal Reserve governor, said in a speech last week. “This is a fight we cannot, and will not, walk away from.”

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