Highlights
In August, consumer price inflation surged on higher energy costs while the core rate held steady and soft. The headline CPI jumped 0.4 percent in August after no change in July and matched market expectations. In the latest month, energy costs spiked 4.6 percent after a 0.1 percent dip in July while food inflation firmed to up 0.1 percent from down 0.3 percent in July. However, core CPI inflation remained steady with a 0.1 percent gain, meeting the consensus forecast.

Within the energy component, gasoline jumped a monthly 9.1 percent for August; fuel oil spiked 6.2 percent; electricity dipped 0.1 percent; and piped natural gas rose 0.4 percent.

Several factors kept the core rate soft. The cash-for-clunkers tax credits helped push prices for new vehicles down by 1.3 percent. Apparel slipped 0.1 percent. Shelter costs were sluggish, including owners' equivalent rent rising only 0.1 percent. The recession has kept rents soft which also impact owners' equivalent rent which is based on actual rent for owner-type houses. On the upside, prescription drugs increased 0.6 percent and airline fares jumped 1.7 percent.

Year-on-year, headline inflation rose to minus 1.4 (seasonally adjusted) from down 1.9 percent in July. The core rate eased to up 1.5 percent in August from up 1.6 percent the previous month. On an unadjusted year-ago basis, the headline number was down 1.5 percent in August while the core was up 1.4 percent.

Outside of energy, consumer price inflation is subdued, leaving the Fed flexibility for when to start unwinding its balance sheet expansion. Given that the August numbers matched expectations, there should be little market reaction today. But the higher energy costs serve as a reminder that when recovery strengthens, oil prices and headline inflation are likely headed up. Bond traders should take note.

Market Consensus before announcement
The consumer price index was flat in July after surging 0.7 percent the month before. Core CPI inflation slowed to a 0.1 percent uptick in July after rising 0.2 percent in June. Helping to soften the July headline number was a decline in energy costs. Helping both the headline and core rates to ease were unchanged rent and owners' equivalent rent along with a drop in lodging away from home, which includes hotels. Looking ahead, a seasonally strong gain in oil prices (West Texas Intermediate, up about 14 percent seasonally adjusted) is likely to boost the headline CPI in August.

2009 Release Schedule

Released On: 1/16 2/20 3/18 4/15 5/15 6/17 7/15 8/14 9/16 10/15 11/18 12/16 Release For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov