These figures tease the hope that the worst of the inflationary pressures may be behind us. But it is likely a false aspiration. Yes, the intensity of price hikes slowed over the summer, but the Delta variant and its disruptions risk another bout of US consumer price spikes in the fall. Even if they do not occur, consumers are unlikely to see lower prices this year thanks to computer chip shortages, rising wage pressures as businesses reopen and the return of rent hikes.
While nine or 10 more months of lofty prices is not an eternity in economic terms, it may feel like one to consumers. So, if households’ longer-term (three to five years) inflation expectations continue to creep higher, then the Fed may be prompted to signal higher interest rates sooner than expected. Typically, if consumers expect prices to continue rising sharply over the longer run, then the Fed will increase interest rates to prevent runaway inflation from occurring.
So, while the August CPI report was better than expected, prices were still very high in the month. And it is very likely that inflationary pressure probably will be with us for a while longer.