Today, September 13, 2023, the Bureau of Labor Statistics (BLS) released the August 2023 Consumer Price Index (CPI). While the Wall Street Journal reported a forecast that the year-over-year increase in the CPI (the increase from August 2022 to August 2023) would be 3.6%, the actual release indicated a 3.7% rise. The July 2023 year-over-year inflation rate was 3.3%, so the August data indicates a rise in the inflation rate.
While substantially below the 8.9% rate measured in June 2022, the recent inflation data remain substantially above the Fed’s target rate of 2%. (The Fed’s target is actually in terms of the inflation rate measured from the Personal Consumption Expenditures Price Index. Over the last 23 years, the CPI inflation rate has been an average of 0.3% higher than the PCE inflation rate, so in a sense one could say that the Fed’s target translates to a CPI inflation rate of 2.3%.)
Looking just at the one-month change from July 2023, the CPI increased 0.63%, an annualized rate of 7.84%.
The core CPI was up 4.4% from a year ago, still higher than the headline CPI but the gap has narrowed. Basically, food and energy prices had been a moderating influence on the CPI inflation rate earlier this year, but that has changed recently. The one-month change in the core CPI was low, however, at 0.3%, an annualized rate of 3.4%. Monthly rates are, of course, notoriously volatile.
Figure 1 plots the year-over-year headline and core CPI inflation rates, as well as the annualized monthly headline and core CPI rates. The volatility of the monthly rates is apparent. The somewhat lower volatility of core inflation can be discerned, and the fact that core inflation lagged behind headline inflation up until June 2022, but since then, core inflation had tended to be above headline inflation, although the gap noticeably narrowed in the last two months. The gradual decline in headline inflation since June 2022, and the much more gradual decline in core inflation, can also be seen. Finally, the rise in the one-month inflation rates for August is apparent, as well as the rise in the year-over-year overall inflation rate.
The BLS also released wage data last week, and average hourly earnings of all private sector workers increased by 0.2% from June to July, an annualized rate of 2.9%. Wages in August 2023 were 4.3% higher than in August 2022.
Economists typically look at real wages, or wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in August increased 0.2% while prices increased 0.6%, so real wages decreased by 0.4%, or at an annualized pace of -4.6%. Year-over-year, wages increased 4.3% while prices increased 3.7%, so real wages increased by 0.6%.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2022 is apparent in the data, as the CPI grew faster than wages. In June 2022, real wages were 4.2% lower than in January 2021. Since then, the moderation of CPI inflation and the continued growth in wages have led to a period of generally positive but small increases in purchasing power. Still, as of August 2023 the purchasing power of wages remains 3.1% lower than in January 2021.
Many had hoped that the August CPI data would provide more evidence that the path of inflation was firmly heading toward the Fed’s 2% target. Unfortunately, it seems that the August data indicates that the jury remains out on this issue.
While substantially below the 8.9% rate measured in June 2022, the recent inflation data remain substantially above the Fed’s target rate of 2%. (The Fed’s target is actually in terms of the inflation rate measured from the Personal Consumption Expenditures Price Index. Over the last 23 years, the CPI inflation rate has been an average of 0.3% higher than the PCE inflation rate, so in a sense one could say that the Fed’s target translates to a CPI inflation rate of 2.3%.)
Looking just at the one-month change from July 2023, the CPI increased 0.63%, an annualized rate of 7.84%.
The core CPI was up 4.4% from a year ago, still higher than the headline CPI but the gap has narrowed. Basically, food and energy prices had been a moderating influence on the CPI inflation rate earlier this year, but that has changed recently. The one-month change in the core CPI was low, however, at 0.3%, an annualized rate of 3.4%. Monthly rates are, of course, notoriously volatile.
Figure 1 plots the year-over-year headline and core CPI inflation rates, as well as the annualized monthly headline and core CPI rates. The volatility of the monthly rates is apparent. The somewhat lower volatility of core inflation can be discerned, and the fact that core inflation lagged behind headline inflation up until June 2022, but since then, core inflation had tended to be above headline inflation, although the gap noticeably narrowed in the last two months. The gradual decline in headline inflation since June 2022, and the much more gradual decline in core inflation, can also be seen. Finally, the rise in the one-month inflation rates for August is apparent, as well as the rise in the year-over-year overall inflation rate.
The BLS also released wage data last week, and average hourly earnings of all private sector workers increased by 0.2% from June to July, an annualized rate of 2.9%. Wages in August 2023 were 4.3% higher than in August 2022.
Economists typically look at real wages, or wages adjusted for inflation. An increase in real wages is an increase in the purchasing power of wages. Wages in August increased 0.2% while prices increased 0.6%, so real wages decreased by 0.4%, or at an annualized pace of -4.6%. Year-over-year, wages increased 4.3% while prices increased 3.7%, so real wages increased by 0.6%.
Figure 2 graphs wages, the CPI, and real wages since January 2021. The decline in real wages from January 2021 through June 2022 is apparent in the data, as the CPI grew faster than wages. In June 2022, real wages were 4.2% lower than in January 2021. Since then, the moderation of CPI inflation and the continued growth in wages have led to a period of generally positive but small increases in purchasing power. Still, as of August 2023 the purchasing power of wages remains 3.1% lower than in January 2021.
Many had hoped that the August CPI data would provide more evidence that the path of inflation was firmly heading toward the Fed’s 2% target. Unfortunately, it seems that the August data indicates that the jury remains out on this issue.