Inflation remains high, sending stocks tumbling, even as lower gas prices ease consumer pain, CPI report shows

Soaring consumer prices aren't fading as quickly as hoped.

Inflation in August remained near 40-year highs, defying forecasts of a sharper decline and squeezing the budgets of millions of Americans who are struggling to cover basic costs like food, gas and rent, a government report Tuesday showed.

While inflation did ease, the drop from a year earlier wasn't as large as economists predicted. And two other key gauges —  the month-over-month change in prices and a measure of inflation that excludes volatile food and energy costs — did just the opposite: They rose.

The disappointing results sent stock and bond prices tumbling, fueled worries that the Federal Reserve will keep raising interest rates aggressively next week and stoked fears that the U.S. economy could slip into recession despite a strong jobs market and falling gas prices.

Paul Davidson | USA TODAY

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