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Key Inflation Indicator Will Be Updated With August Data

NOEL KING, HOST:

Inflation in both June and July was the highest it's been in more than 12 years. That means Americans are paying more for everyday items. Later this morning, we'll get the consumer price index for August. The CPI is the key indicator for inflation. And it's expected to show another jump in prices. NPR's chief economics correspondent Scott Horsley has been following this one. Good morning, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Noel.

KING: So we've been talking about inflation for a good couple of months now. What is driving prices higher at this precise moment?

HORSLEY: There is still a lot of demand from consumers. And some businesses are just having trouble keeping up. A lot of businesses say they don't have enough workers to make all the stuff that people are buying. We continue to see delays getting parts and products to market. And all that is a recipe for higher prices. A couple of things we're going to be watching for in today's report, Noel, first, of course, is the overall rate of inflation. Is it going up? Or is it leveling off? But also, what is getting more expensive? And what, if anything, is getting cheaper? We have seen lumber prices come down from their peak in the springtime. We expect the same thing to happen with the price of used cars. Also, because of the delta variant, people are not traveling or going out as much as they were earlier in the summer. So we could see a dip in the price of things like rental cars and concert tickets.

KING: But the causes of inflation are largely the same, which is businesses saying they don't have enough workers and, you know, just delays in the supply chain. The Biden administration and the Federal Reserve have said again and again they think this period of high inflation is temporary. It's because of the pandemic. I guess the question now is, do markets and consumers believe that?

HORSLEY: Markets seem to believe it. The financial markets are pointing to temporary inflation. And most professional forecasters also see inflation moderating, although, not right away. But the Federal Reserve Bank of New York just came out with a survey of regular folks. And they generally do see prices staying higher longer. On average, consumers now expect inflation to be 5.2% a year from now, so only a little lower than it was in June and July. Three years from now, consumers think inflation will still be 4%, which is double the Federal Reserve's long-term target. Now, the Fed watches consumer expectations pretty carefully because if people think prices are going to keep on climbing, they might start to demand higher wages. And you can get into a 1970s-style feedback loop where wages and prices just keep ratcheting up. The Fed is on the lookout for that. But so far, the central bank doesn't see that happening.

KING: Are rising prices going to be a political problem for President Biden, do you think?

HORSLEY: You know, it depends on how long the price stays up. But the White House is certainly sensitive to that. While the administration says it's not terribly concerned about inflation, it has bent over backward to show it's on guard. Some prices are more politically powerful than others - groceries, for example. People go to the grocery store every week. So if there's a big swing at the checkout line, they tend to notice that. Last week, the White House put out a report suggesting that the concentration in the meatpacking industry is partly to blame for the rise in grocery prices. That was both a way to highlight the administration's efforts to promote competition and maybe a way to deflect a little anger over the rising cost of hamburger. Of course, gasoline is the most visible price in the country. And gas prices have actually been pretty flat over the last month. Here in Washington, some pump prices are actually below $3 a gallon now. I know that sounds expensive if you're on the Gulf Coast. But it sounds dirt cheap in California.

KING: It's all relative. NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.