In this morning’s data, the headline Consumer Price Index (CPI) increased 0.2% in August, as expected and the same as the previous month’s increase. On an annualized basis it grew 2.5%, less than July’s figure. The core rate, which excludes prices for food and energy, increased 0.3% in August, higher than expected and slightly higher than last month’s increase. It grew 3.2% on an annual basis, the same as July’s annual figure.
Reviewing the individual categories, monthly prices for Tobacco and Smoking products, up 1.2%, and Transportation Services, up 0.9%, were relatively strong while monthly prices for Utility (piped) gas service, down -1.9%, Fuel Oil, down -1.9%, and Used Cars and Trucks, also down -1.0%, were relatively weak. Prices for Shelter were up 0.5%, above levels seen in previous months.
Overall, inflation data points continue to moderate with smaller monthly increases in the headline figure compared to earlier in the year. The annualized figure for the headline rate was less than the previous month, while the annualized figure for the core rate stayed the same given an uptick in shelter costs.
These levels are still above the Federal Reserve’s targets but remain on a lower trajectory. As a result, the Federal Reserve can still focus more on the full employment part of their mandate as they look to start interest rate reductions at their upcoming meeting. Although, the monthly increase in core rates slightly above expectations hints that the Fed may need to proceed with caution. Going forward, as long as inflation measures continue to move lower to their target, the Fed can continue these reductions. The speed and impact of this policy will be key for the market and economy in the coming months.
In all, the 10-year US treasury yield moves higher following the report and equity futures are lower as we head into the market open.
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