United States: Inflation cools in August from July’s six-and-a-half year high
Consumer prices rose 0.2% from the previous month in August, matching the print recorded in July and slightly under market expectations of a 0.3% increase. The result was driven in large part by a sharp 1.9% month-on-month surge in energy prices due to higher prices for commodities such as gasoline and fuel oil. Meanwhile, inflation cooled from June’s 2.9%, a six-and-a-half-year high which was maintained in July, to 2.7% in August.
Core consumer prices, which exclude volatile items including food and energy prices, rose 0.1% from the previous month in August, down from 0.2% in July and undershooting market expectations of 0.2%. The figure reflected a robust increase in prices for shelter and higher prices for airline fares and used cars and trucks. These increases more than offset price declines for other categories, notably apparel and medical care.
As is often the case, the most closely watched indicator of this CPI report was core inflation, a close proxy to the Fed’s preferred price level gauge—the core PCE deflator—and an important indicator to predict monetary policy movements. Core inflation slowed from the near 10-year high of 2.4% in July to 2.2% in August. Taken by itself, this deceleration might be casting doubts on whether the Fed will decide to raise its policy rate at its next meeting on 25-26 September—which is overwhelmingly expected by both FocusEconomics Consensus Forecast panelists and by financial markets as measured by CME Fed funds futures. However, the August jobs report also showed wage growth reaching a near decade-high of 2.9% annually, which should eventually feed through to higher prices and thus help maintain the Fed’s confidence in the appropriateness of a September rate hike.
Nevertheless, further monetary policy developments might also be impacted by the latest round of proposed tariffs on China. The duties could affect USD 200 billion of imports and take effect in the coming weeks, which would most likely increase inflationary pressures due to the large proportion of consumer goods that would be hit, directly or indirectly.