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Inflation for August ticked upwards to 3.7%, climbing from the 3.6% rate in July, according to the Bureau of Labor Statistics. This latest data shows that the Federal Reserve’s efforts to tame high prices continue to be a challenge, as both consumer prices and producer prices have accelerated more than expected in recent months.
The Fed has been attempting to increase inflation after a long period of subdued price growth throughout the recovery from the Great Recession. Last month, the Fed decided to adopt an average inflation target of 2%, allowing temporary overruns in the face of slight deflationary pressure.
However, the latest reading comes in higher than the central bank’s expectations, which could present a problem for policy makers looking to bring prices down but not risk overshooting the mark. Part of the challenge is that rising uncertainty surrounding coronavirus cases and related restrictions have pushed up core prices—the cost of goods not including energy and food—to their highest level since 2008.
Fed Chairman Jerome Powell has previously stated that policymakers need to continue to monitor price growth carefully, and this latest data may be an indicator that the central bank may be forced to take more dramatic steps in the months ahead. It’s possible that the Fed could launch more bond purchases or even raise interest rates. Whatever the case, the long-term effects on the economy remain uncertain.