Editor’s note: Dr. Mike Walden is a William Neal Reynolds Distinguished Professor Emeritus at North Carolina State University.


RALEIGH – Today is “inflation day” for August, the day when the federal Bureau of Labor Statistics releases the latest data on price increases for consumers.  Depending on which inflation measure is preferred, people either come away frowning or smiling.

If you focus on the “all item” index, which includes price data for everything that consumers regularly purchase, a “frown” will likely appear on your face.   The August year-over-year index rose 3.7%, up from the 3.2% increase for July year-over- year.   The culprit in the jump was gas prices, which surged 10.6% during August.  A combination of summer driving, refinery issues, and cutbacks in oil supplies from OPEC were the major reasons behind the pain at the pump.

Mike Walden (NCSU photo)

But the so-called “core inflation rate” – which does not include price changes for food and fuel, moderated in August, rising 4.3% year-over-year compared to 4.6% year-over-year in July. Because uncontrollable factors like weather and foreign policies can impact food and fuel prices, many policy-makers consider the core inflation rate to be a better indicator of underlying price trends.  So these folks may actually be smiling about today’s news.

Of course, most people consider food and fuel as important factors in their cost-of-living, so there will be widespread unhappiness about today’s numbers.  But the better news for core inflation may have a silver lining.  If the Federal Reserves puts more focus on the core rate – as we think they do – then they may see success in today’s report and decide not to raise interest rates any higher when they meet next week.

So the evaluation of today’s inflation report is “in the eye of the beholder.”