What’s Behind the Increase in Inflation 

Inflation remains high, as the prices of goods and services push up the CPI, while travel expenses and the price of gasoline are decreasing. 

Why it’s important

As we reported yesterday, the Bureau of Labor Statistics announced on Tuesday that inflation rose steeply again in August, to a rate of 8.3%. The announcement cooled investors’ hopes that the economy would settle in the near future and is creating fear of continued economic stress. 

The prediction was that lower gas prices would reflect upon inflation and lower the majority costs. AAA reports the National Average of Gas is sitting at $3.70 per gallon, down from the $5.02 peak in June.

With inflation continuing to rise in spite of a reduction in gasoline prices, recession fears seem to be coming to pass. 

“Policymakers might view the increase in core prices, in particular, as evidence that the tight labor market, rather than simply pandemic-related problems, is causing inflationary pressures. If that is true, the Fed might want to see clear evidence that job growth is weakening before letting up,” says The Wall Street Journal. 

“Whatever the chances of the Fed sending the economy into a recession were before Tuesday, they should be higher now.”
It is likely that the Federal Reserve will increase interest rates next week by another 75-points for the third time in 2022 in an effort to curb inflation, although this is likely to increase the chances of a recession within the next 12 to 18 months.