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Gas prices surged in August amid oil's supply crunch

Energy prices, specifically gasoline, were the biggest culprit of August's hotter than expected inflation print.

The Bureau of Labor Statistic's Consumer Price Index (CPI) rose 3.7% on year-over-year basis in August, topping economist expectations of 3.6%.

"The index for gasoline was the largest contributor to the monthly all-items increase, accounting for over half of the increase," read the CPI release.

The energy index rose 5.6% in August from the prior month, a sharp re-acceleration from a 0.1% increase in July, as oil prices rallied and prices at the pump hit 2023 highs.

The gasoline index saw the biggest price increase among the energy components, with a 10.6% rise in August on a monthly basis, following a 0.2% increase in July.

Across the board all the energy components saw a month-over-month increase in prices. Electricity rose 0.2% in August after decreasing 0.7% in July. Natural gas jumped 0.1% over the month, following a 2% increase in July. Fuel oil also rose by 9.1% in the last month.

Despite the month-over-month rise, the energy index is down 3.6% when compared to 12 months ago. All of the components within the sector, except for electricity, are down on a year-over-year basis.

Oil's is on a three-month rally, up around 30% since late June amid a tight supply squeeze following OPEC+ production cuts and unilateral output reductions extended by Saudi Arabia and Russia.

A gas pump is inserted inside an Audi vehicle at a Mobil gas station in Beverly Boulevard in West Hollywood, California, U.S., March 10, 2022. Picture taken March 10, 2022. REUTERS/Bing Guan
Gas prices climbed in August, pushing up the inflation rate. REUTERS/Bing Guan (Bing Guan / reuters)

"The math is simple — declining supply and rising demand equal higher prices," Adam Turnquist, chief technical strategist for LPL Financial, recently wrote in a note to investors.

West Texas Intermediate (CL=F) crossed $89 per barrel on Wednesday. Brent crude futures (BZ=F) sat above $92 per barrel. The prices represent oil's loftiest levels since November 2022.

Ines Ferre is a senior business reporter for Yahoo Finance. Follow her on Twitter at @ines_ferre.

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