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Highlights
Inflation at the consumer level remained surprisingly warm in August. The consumer price index in August barely slowed to a 0.4 percent increase, following a strong 0.5 percent jump in July. The August figure exceeded the median projection for a 0.2 percent increase. Excluding food and energy, the CPI rose 0.2 percent, matching the pace the month before.
For major components, energy continued to rise with a 1.2 percent increase after rebounding 2.8 percent in July. Gasoline increased 1.9 percent, following a 4.7 percent jump in July. Food price inflation accelerated, rising 0.5 percent after jumping 0.4 percent the prior month.
Within the core, shelter and apparel were the biggest contributors to the gain. Shelter rose 0.2 percent while apparel jumped 1.1 percent with the latter likely feeling pressure from higher costs for materials. Overall, most of the core's major components posted increases, additionally including used cars and trucks, medical care, household furnishings and operations, recreation, tobacco, and personal care. The new vehicles index, unchanged for the second month in a row, was an exception.
Year-on-year, overall CPI inflation worsened to 3.8 percent from 3.6 percent (seasonally adjusted) in July. The core rate accelerated to 2.0 percent from 1.8 percent on a year-ago basis. On an unadjusted year-ago basis, the headline number was up 3.8 percent in August and the core was up 2.0 percent.
With today's report, the core CPI hit the upper bound of the Fed's implicit inflation target range of 1.5 to 2.0 percent. This will make it tougher for the doves in the FOMC to argue for another round of monetary ease. Equity futures fell back at the time of the release on a rise in jobless claims and a weak Empire State number.
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Market Consensus before announcement
The consumer price index in July jumped 0.5 percent, following a 0.2 percent dip the prior month. Excluding food and energy, the CPI increased 0.2 percent after a 0.3 percent jump the prior month. Turning to major components, energy rebounded 2.8 percent after dropping 4.4 percent the month before. Gasoline jumped 4.7 percent, following a 6.8 percent plunge in June. Food price inflation accelerated, jumping 0.4 percent, following a 0.2 percent rise in June. Within the core the shelter index accelerated in July (largely lodging, up 0.9 percent), and the apparel index again increased sharply (up 1.2 percent).
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