BridgeWorks
The Bureau of Labor Statistics released August's Consumer Price Index this morning, and the headline number has not moved: prices are up 3.4 percent over the past twelve months, the same reading as July. Month over month, the index rose 0.4 percent.
Read only that and you would conclude inflation is stuck. The detail says something more specific, and more useful.
Two numbers going in different directions
- All items: +3.4 percent over twelve months
- Core, excluding food and energy: +2.4 percent
A full percentage point separates them, and that gap is the story. Core inflation at 2.4 percent is not far from the Federal Reserve's 2 percent goal. The categories economists strip out to see the underlying trend have largely calmed down.
What has not calmed down is energy:
Twelve-month changes, worst to best:
- Gasoline: +27.4 percent
- Energy overall: +16.3 percent
- Shelter: +3.0 percent
- Food: +2.7 percent
- Core, less food and energy: +2.4 percent
In August alone, gasoline rose 3.9 percent and accounted for more than a third of the entire monthly increase in the index.
This is a real change from earlier in the year. When we covered July's CPI, shelter was the main driver — roughly two-thirds of the monthly rise. Shelter has since cooled to 3.0 percent annually. The pressure moved.
Why this lands harder on our participants
An economist looking at 2.4 percent core inflation sees progress. That is a defensible read of the trend. It is also close to useless as a description of a working household's month, for a specific reason.
Energy is not optional, and it is not evenly distributed. A 27 percent annual increase in gasoline is a tax on people whose work requires a car — which describes most of the jobs our participants take. Construction sites, warehouses, health care facilities, and early shifts in food service are rarely on a bus line that runs at 5:30 a.m. The commute is a condition of the job.
Consider what that does to a wage. Payroll data from last week's jobs report showed average hourly earnings up 3.1 percent over the year. Against 2.4 percent core inflation, that is a small real gain. Against a 27 percent jump in the single input that gets someone to work, it is not.
This is also why the transportation support in our wraparound services is not a nice-to-have. When fuel moves like this, the gap between a job offer and a job someone can actually keep is measured in gallons.
What it means for rates
The Fed announces its next rate decision on September 16. Chair Warsh was explicit at Jackson Hole that prices are the committee's "predominant focus", and he declined to rule anything out, saying that if underlying inflation is not moving to target quickly enough, "we have work to do."
Today's report gives him material for either argument, which is worth being honest about. Core at 2.4 percent supports patience. Headline stuck at 3.4 percent, with energy climbing, supports staying restrictive. Our guess is worth exactly what a guess is worth, so we will not offer one — but anyone hoping this report forces a cut should read the headline number the way the Fed will.
The practical read
Three things worth carrying out of this:
- Do not confuse the headline with your budget. Your personal inflation rate depends on what you buy. A long commute means your rate is well above 3.4 percent right now; a short one means it is closer to 2.4.
- Factor fuel into a job decision. A role paying a dollar more an hour twenty-five miles away may not clear a role closer to home at today's prices. That arithmetic has changed since spring, and it is worth redoing.
- Ask about commuting support. More employers offer mileage help, shift-aligned schedules, or fuel stipends than advertise them. It is a reasonable question at an offer conversation.
Inflation stories tend to be told in aggregates. The aggregate this month is genuinely mixed. The part that reaches a household is not evenly spread, and right now it is concentrated where you fill the tank.
