Prices paid by U.S. consumers rose in August by less than forecast, snapping a string of hefty gains and suggesting that some of the upward pressure is beginning to wane.
The consumer price index increased 0.3% from July, the smallest advance in seven months, according to Labor Department data released Tuesday. Compared with a year ago, the index rose 5.3%.
Core prices, which exclude volatile food and energy costs, rose 0.1% in August and were up 4% over the past year, an improvement from 12-month gains of 4.3% in July and 4.5% in June.
Faced with mounting cost pressures as a result of materials shortages, transportation bottlenecks and hiring difficulties, businesses have been raising prices for consumer goods and services.
While price increases associated with the economy's reopening are beginning to abate, supply chain snags could linger well into 2022 and keep inflation elevated. Economists at Citigroup Inc. said after the report that they "continue to see signals both in the details of the inflation report and in other data that broader inflationary pressure will prove more persistent than expected."
The Labor Department report also showed that the hot housing market is starting to filter through to rent prices, which rose by the most since March 2020.
The price data precedes next week's Federal Open Market Committee meeting, where Fed officials will debate how and when to begin tapering asset purchases. Fed Chairman Jerome Powell said last month that the central bank could begin reducing its monthly bond purchases this year, but he didn't give a specific time line.
"The 'is it transitory debate' is far from over, but at least this more moderate gain in consumer prices will give the Fed some breathing room next week," said Jennifer Lee, senior economist at BMO Capital Markets. "But not for long."
The figures offer some validation of views among Fed officials and the Biden administration that high inflation will prove temporary. The report could also help blunt criticism from Republicans that President Joe Biden's economic stimulus is spurring damaging inflation as he seeks to sell a $3.5 trillion long-term tax-and-spending package that's also running into opposition from moderate Democrats.
Parts shortages that have driven up input costs are restraining production. In the past week, Toyota and 3M both downgraded outlooks for car output because of semiconductor shortages, while Nestle said it is introducing price increases as commodity and transportation costs surge.
Meanwhile, Hurricane Ida halted operations at refineries and petrochemical plants in the South, adding to pandemic-related supply chain bottlenecks and likely price pressures as well.
For August, food prices rose 0.4%, a slight moderation after gains of 0.8% and 0.7% in the previous two months.
Energy prices rose 2% in August and were up 41.9% over the past year, a surge that has been driven by rising gasoline prices, which were up 2.8% in August and have jumped 42.7% over the past year as the availability of vaccines has allowed Americans to resume traveling.
There is some evidence in Tuesday's report suggesting that the surge in covid-19 cases caused by the delta variant may have contributed to slowing price gains, particularly in areas such as travel. Airline fares fell 9.1% in August while hotel room rates were down 2.9% and rental car prices dropped 8.5%. Used-car prices were down 1.5%, and vehicle insurance costs decreased 2.8%.
New-car prices increased 1.2%, reflecting the supply chain problems still confronting automakers trying to get semiconductor deliveries.
"We expect modest core CPI prints over the next few months, as used car prices -- the single biggest driver of the spring surge -- continue to fall but airline fares and hotel room rates eventually will rebound as the delta wave fades," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note.
Rent and owners' equivalent rent both climbed 0.3%. Among other notable increases, prices of household furnishings jumped by a record 1.2% from July. Costs of motor vehicle parts and equipment, as well as men's suits, posted unprecedented advances.
While firms have been increasing wages in recent months, rising consumer prices have been eroding Americans' buying power. Inflation-adjusted average hourly earnings fell 0.9% year-over-year in August after a 1.2% drop a month earlier, separate data showed Tuesday.
Information for this article was contributed by Olivia Rockeman, Chris Middleton, Reade Pickert, Sophie Caronello, Scott Lanman and Alexandra Harris of Bloomberg News (WPNS) and by Martin Crutsinger of The Associated Press.