Americans may be getting more miles out of a gallon of gasoline, but they're paying much more to put food on the table, according to the latest consumer price index report released Tuesday.

Food prices surged 11.4 percent in August over the same month in 2021, the largest 12-month increase since May 1979. Last month, food prices rose 0.8 percent, with the cost of food consumed at home increasing 0.7 percent.

Though consumers got some relief from a 10.6 percent decline in gasoline prices from a record above $5 a gallon in June to $3.71 currently, they also are paying more for rent, healthcare, electricity and natural gas.

The Labor Department's consumer price index (CPI) report showed that inflation increased by 8.3 percent in August year over year, higher than expected.

The news will likely lock in another three-quarter point interest rate hike next week by the Federal Reserve, whose target inflation rate is 2 percent.

That bearish prospect of more rate hikes also pummeled the stock market, sending the Dow Jones Industrial Average down by 1276 points, or just under 4 percent. The S&P 500 dropped 178 points, or 4.3 percent, while the tech-laden Nasdaq took the biggest percentage hit — 5.2 — after falling more than 633 points.

Some economists now expect the Fed to raise its benchmark short-term rate, currently in a range of 2.25 percent to 2.5 percent, to 4.5 percent or higher by early next year. That would make it even harder for the central bank to meet its goal of achieving a "soft landing" without causing a recession.

"This was a disappointing report," said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives. "It raises the risk of higher interest rates and a hard landing for the economy."

The annual CPI has remained above 8 percent for six straight months. It was up 8.5 percent in July and 9.1 percent in June, which was the biggest gain since November 1981.

The average household is spending $460 more each month to buy the same basket of goods and services as last year, said Ryan Sweet, senior director of economic research at Moody's Analytics, to The Wall Street Journal.

"That's a big burden, particularly on lower-income households. That's one reason the Fed is laser-focused on getting inflation down," he said.

Brad Botwin, a retired federal worker in Rockville, Maryland, told the Journal that grocery prices are "shocking".

"I find myself buying three of something instead of one because I know the prices are going to go up," he said. "I didn't think this way before all this — I used to just throw whatever I wanted into the grocery cart."

President Joe Biden said on Tuesday it would "take more time and resolve to bring inflation down" and cited the recently passed Inflation Reduction Act aimed at lowering the cost of healthcare, prescription drugs and energy.

He later celebrated the passage of that $737 billion legislation — which includes nearly $400 billion for environmental programs, including tax credits of up to $7,000 to buy electric vehicles — on the White House South Lawn with other prominent Democrats.

"I believe Republicans could have and should have joined us on this bill as well," Biden said of the bill that got no GOP support. "After all, this bill cut costs for families to help reduce inflation at the kitchen table."

In a tweet, Senate Minority Leader Mitch McConnell wrote: "You can't make it up: Hours after this terrible inflation report, the White House is hosting an ‘inflation reduction' celebration. Democrats have spent our economy into disaster and now they're partying while families pay. They could not look more out of touch if they tried."

The inflation act's spending is offset by new taxes on corporations, including a 15 percent corporate minimum tax and increased Internal Revenue Service tax enforcement. It also allows Medicare to directly negotiate drug prices.

The law could potentially reduce inflation because it would lower annual budget deficits by $300 billion over 10 years.

But by partially forgiving student debt in an August executive order, Biden likely has erased those deficit savings, according to the Committee for a Responsible Federal Budget. An analysis by the fiscal watchdog estimates that the order on student debt would cost roughly $500 billion over 10 years, "completely eliminating any disinflationary benefit".

As for current inflation, the nonpartisan Congressional Budget Office last month judged the bill would have a "negligible" effect on prices through 2023.

The University of Pennsylvania's Penn Wharton Budget Model said "the impact on inflation is statistically indistinguishable from zero" over the next decade.

Fed officials will gather on Sept 20 and Sept 21 for their regular policy meeting. Financial markets have priced in a 75-basis-point rate increase, with potential for a full percentage point raise, according to CME's FedWatch Tool.

"It's becoming more apparent to market participants that the amount of tightening from the Fed thus far has not been enough to cool the economy and bring down inflation," said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis.

The Fed has twice increased rates by three-quarters of a percentage point, in June and July. Since March this year, it has lifted rates from near zero to its current range of 2.25 to 2.50 percent.

Excluding the volatile food and energy components, core CPI rose 0.6 percent in August after advancing 0.3 percent in July. Economists had forecast core CPI increasing 0.3 percent.

Higher mortgage rates and home prices are reducing affordability for many first-time buyers, driving up demand for rental housing.

In a video posted on Twitter, the Grammy Award-winning rapper Cardi B said she was shocked at how much rents have increased while helping a cousin find an apartment.

"I was looking at some areas. The way that the prices soar up … like how are people surviving?" she asked. "I want to know. My family and my friends, they're so grateful to have me, but it's just like, what happens to people who don't have a me?"

Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles, said: "Wages and shelter costs will remain the primary drivers of future inflation. No significant respite in inflation is in sight."

On the energy front, 1 out of 6 American families has fallen behind on utility bills and owe a collective $16 billion, an amount that has doubled since late 2019, according to the National Energy Assistance Directors Association.

The electricity part of the CPI climbed 15.8 percent in August over the same month a year ago, the most since 1981. Much of the electricity price increases have been driven by rising prices of natural gas, which powers nearly 40 percent of US electricity production, according to The Wall Street Journal.

Agencies contributed to this story.

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