United States: Inflation increases in August
Inflation came in at 3.7% in August, up from July’s 3.2%, slightly above market expectations of 3.6% and well above the Federal Reserve’s 2.0% target. Looking at the details of the release, a far smaller year-on-year drop in energy prices as the base effect turned less favorable was largely behind the acceleration in inflation.
The trend pointed down, with annual average inflation coming in at 5.4% in August (July: 5.8%). Meanwhile, core inflation fell to 4.3% in August from July’s 4.7%, which was in line with market expectations.
Lastly, consumer prices increased 0.63% over the previous month in August, picking up from the 0.17% increase seen in July. August’s result was the highest reading since June 2022.
On the implications for monetary policy, TD Economics’ Thomas Feltmate said:
“With core inflation continuing to move in the right direction, the labor market slowly coming back into better balance, and term yields having recently surpassed last year’s highs, the FOMC can afford to skip the September meeting and continue to ‘monitor the data’. However, it’s still too soon to know whether the recent easing in inflationary pressures will be fleeting or more long lasting. This should keep the Fed guarded at its upcoming meeting, reinforcing the need for rates to remain ‘higher for longer’ and keeping the possibility of another rate hike in play.”