Inflation Remained Stubborn in August | Economy

Selina Johansson

A gauge of inflation closely watched by the Federal Reserve Board was essentially unchanged in August, suggesting inflation is showing little sign of abating, the Commerce Department reported on Friday.

The overall personal consumption expenditures index was 4.3% in August compared to 4.2% a year earlier, while the monthly rise was unchanged at 0.4%. Excluding food and energy, which tend to be volatile, the index rose 3.6% year over year and 0.3% from July, both of which were unchanged.

The increase was in line with expectations, though some economists had expected a slight drop. Recent comments from Fed officials suggest that inflation is proving more sticky than they originally anticipated. A key element in rising prices has been the disruption of global supply chains, which has left many industries struggling to meet demand.

Political Cartoons on the Economy

The delta variant of the coronavirus is also hindering economic growth as businesses and other establishments impose masking and vaccination requirements. Last week, the Fed lowered its forecast for 2021 growth in the nation’s gross domestic product to 5.9% from its previous estimate of 7%. However, it raised its forecast for 2022 to 3.8% from 3.3% previously.

The combination of slowing growth and higher inflation is weighing on the market. Bond yields have risen in recent days, with the yield on the benchmark 10-year Treasury going above 1.5%. Meanwhile, the Standard & Poor’s 500 index suffered a losing September, dropping 4.8% for the month.

Also rattling markets is the continued standoff in Washington over the budget and the issue of raising the debt ceiling. Congress assuaged some of that angst Thursday when it agreed to a deal to continue funding the government, signed by President Joe Biden. However, House leaders decided to postpone a Thursday vote on a $1-trillion infrastructure plan; another vote could come Friday.

One question for the economy is what happens now that it no longer has trillions in stimulus from Washington, much of it designed to blunt the effects of the coronavirus.

“Can the economy sustain itself without this massive amount of stimulus and accommodative monetary policy?” asks Dustin Thackeray, chief investment officer at Crewe Advisors. “I think we are going to have some challenges, especially with the supply chain issues.”

Meanwhile, personal income rose 0.2% in August, following an increase of 1.1% in July. Consumer spending increased 0.8% for the month, compared to a decline of 0.1% in July.

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