Consumer prices rose 0.2% in August as the annual inflation rate hit 2.5%, the lowest since February 2021, according to a Labor Department report. The slight moderation in inflation has led traders to price in an 85% chance that the Federal Reserve will approve a quarter-percentage-point interest rate cut at its September 18 meeting. Core CPI, which excludes volatile food and energy prices, increased 0.3% in August, slightly higher than the 0.2% estimate.
The 12-month core inflation rate remains at 3.2%. Real earnings rose for the month, with average hourly wages outpacing the monthly CPI increase by 0.2%, providing some relief for consumers. Seema Shah, chief global strategist at Principal Asset Management, said, “This isn’t the CPI report the market wanted to see.
With core inflation coming in higher than expected, the Fed’s path to a 50 basis point cut has become more complicated.”
Housing-related costs remain a significant concern, with the shelter component of the CPI increasing 0.5% in August and accounting for about 70% of the core increase. Year over year, the shelter index is up 5.2%. Food prices rose marginally by 0.1%, and energy costs dipped by 0.8%.
Used vehicle prices were down 1%, medical care services down 0.1%, and apparel prices up 0.3%.
U.S. inflation eases but concerns persist
Egg prices went up by 4.8%.
Labor conditions are also at the forefront of the Fed’s concerns, with job creation since April slowing significantly compared to the prior five months. Treasury yields, especially at the 2- and 10-year durations, are at their lowest in over a year, indicating market expectations for lower rates ahead. Inflation levels remain above the Federal Reserve’s 2% target, impacting various consumer sectors.
Airline fares increased by 3.9% in August after five months of decline, while motor vehicle insurance went up by 0.6%, leading to a 16.5% year-over-year increase. Hospital and related services costs rose 0.4% for the month and 5.8% over the past year. Lower energy costs have contributed to reducing inflation figures, with gasoline prices dropping 0.6% in August and down 10.3% year over year.
The broader energy index fell 4%, including a significant 12.1% drop in fuel oil prices. Lisa Sturtevant, chief economist at Bright MLS, noted, “Although inflation has eased, it does not mean that the prices of things that people buy have actually fallen. It just means that prices are not increasing as fast.
U.S. consumers are paying more than 20% more for goods and services than before the pandemic.”
- NPR.”Inflation falls to its lowest level in more than 3 years. Here’s what that means”.
- APNews.”Federal Reserve signals end to inflation fight with a sizable half-point rate cut”.
- CNBC.”Consumer prices rose 0.2% in August as annual inflation rate hits lowest since early 2021″.