Higher gas prices and a slowdown in the reduction in inflation soured consumer confidence in August, according to The Conference Board.

New data on Tuesday showed that the Consumer Confidence Index fell to a reading of 106.1 in August, down from 114 in July and below the 116 number expected by economists.

"August's disappointing headline number reflected dips in both the current conditions and expectations indexes," said Dana Peterson, chief economist at The Conference Board. "Consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular."

The latest reading comes after a strong report in July in which consumer confidence soared to its highest level in nearly two years — thanks partly to stronger-than-expected economic data and prices rising at the slowest pace in more than two years.

Federal Reserve Chair Jerome Powell highlighted the bullish July confidence numbers during last month's press conference.

"It is a good thing headline inflation has gone down a bit," Powell said. "I would say that having headline inflation move down that much ... will strengthen the broad sense that the public has that inflation is coming down, which will, in turn, we hope, help inflation continue to move down."

But since then, consumers have digested a fresh Consumer Price Index report that revealed prices increased 3.2% in July, up from the 3% increase in June; in certain consumer-facing areas prices are nearly as expensive as they were a year ago.

In August, gas prices touched their highest levels of 2023 and diesel fuel prices just hit their highest levels since March. As of Tuesday morning, the average gallon of gas is $3.82, nearly equal to the cost of gallon a year ago, and up $0.08 from last month.

"Higher gasoline prices have likely weighed on confidence as well and could continue to do so as gasoline prices remain more elevated than earlier in the summer," Citi's economics team wrote on Tuesday. "We see more downside risk to confidence measures early next year as the labor market could start to weaken more meaningfully."

Expectations for the near term declined to a reading of 80.2 in Tuesday's release. Historically, a reading of 80 or lower has indicated a recession will come in the next 12 months. Weakening sentiment about the strength in the labor market also contributed to August's decrease in confidence, according to the conference board.

"Assessments of the present situation dipped in August on receding optimism around employment conditions: fewer consumers said jobs are 'plentiful' and more said jobs are 'hard to get,'" The Conference Board's Peterson said in a statement.

Other data on the labor market released from the Bureau of Labor Statistics showed the number of open jobs in the US fell to the lowest level in more than two years in July.

Oxford Economics lead US economist Michael Pearce said that the receding consumer confidence index shows the consumer is "tapped out." Pearce believes combination of shrinking job openings and rising gas prices could put the breaks on consumer spending — and send the US into a recession that some economists recently have been writing off.

"Alongside rising gasoline prices and weaker equity prices, a softening labor market would add to the stress on consumers and is consistent with our forecast that consumption growth is set to slow sharply from here," Pearce wrote on Tuesday.

Josh Schafer is a reporter for Yahoo Finance.

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