Highlights:
- All items CPI rose 0.2% on month-over-month basis in August with the year-over-year rate dipping to 2.7% from 2.9% in July.
- Energy prices rose 1.9% from July. The year-over-year rate slowed to 10.2% from 12.1% in July, though.
- Year-over-year food price growth held steady at 1.4%.
- Core (ex-food & energy) prices inched up 0.1% on a month-over-month basis. The year-over-year rate fell to 2.2% from 2.4% in July.
Our Take:
The moderation in the headline year-over-year rate to 2.7% from 2.9% was partly due to an expected slowing in annual energy price growth. Ex-food & energy price growth was a larger surprise with just a 0.1% increase on a month-over-month basis sending the year-over-year rate down to 2.2% from 2.4% in July. That’s still above the Fed’s 2% inflation objective, though, and the moderation probably reflected more ‘noise’ than underlying trend anyway. Apparel prices posted their largest one-month decline since 1949 in August (-1.6%) and medical costs dipped again. Neither of those declines seem likely to last — particularly for apparel prices if the Trump administration follows through on threats to levy further tariffs on imports from China. Looking through monthly wiggles, underlying price growth is still more likely trending upward than downwards. The combination of already tight labour markets and tailwinds from deficit-financed government tax cuts that continue to spur economic growth have been pushing wages gradually higher. Inflation around 2% alongside strong labour market and GDP data should only reinforce expectations that policymakers will continue to gradually hike rates.
