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August US Inflation Holds Steady as Fed Decision Nears
Prices in the United States went up more quickly in August than in July.
The overall inflation rate compared with a year earlier stayed at 3.4%.
A measure that leaves out food and energy rose more than expected during the month.
Gasoline became more expensive and caused a large part of the increase.
Housing costs also rose, while food prices increased only a little.
Some analysts think the numbers support raising interest rates.
Other officials have said they might wait if inflation continues to cool.
The Federal Reserve was expected to decide what to do at its September meeting.
Headline CPI rose 0.4% in August, accelerating from July’s 0.1% increase, while annual inflation remained at 3.4%.
Core CPI increased 0.3% monthly, above the 0.2% forecast, but eased annually to 2.4% from 2.5%.
Gasoline prices rose 3.9% and energy costs increased 2.1%, together driving much of the monthly inflation increase.
Shelter costs rose 0.3%, food prices increased 0.1%, and several service categories also recorded gains.
The August data came before the Federal Open Market Committee’s September meeting, with analysts divided over whether the Federal Reserve would raise rates or hold them steady.
- Who
- The US Bureau of Labor Statistics released the data, while Federal Reserve officials and market analysts assessed its implications.
- What
- US headline CPI rose 0.4% in August, annual inflation held at 3.4%, and monthly core CPI increased 0.3%.
- Where
- United States
- When
- The data covered August and was released before the Federal Open Market Committee’s September meeting; the articles give the meeting dates as September 15–16 and September 16, respectively.
- Why
- Higher gasoline and energy prices pushed up headline inflation, while the above-forecast core increase influenced expectations about a possible Federal Reserve rate hike.
Arguments for a Rate Hike
Arguments for Holding Rates
Core inflation
Arguments for a Rate Hike
The 0.3% monthly core CPI increase exceeded expectations and was described by analysts as an important test for the Federal Reserve’s decision.
Arguments for Holding Rates
Core inflation eased annually to 2.4% from 2.5%, and some policymakers indicated they could favor holding rates if price pressures continued to abate.
Central bank credibility
Arguments for a Rate Hike
Nic Puckrin argued that delaying a hike could damage the credibility associated with Fed Chairman Kevin Warsh and that the data gave the Fed little reason to wait.
Arguments for Holding Rates
Puckrin also warned that raising rates could pressure financial markets, with 10-year yields described as nearing 5%.
Broader inflation pressures
Arguments for a Rate Hike
Gasoline and energy prices rose sharply, and the articles noted that the data did not include a more recent oil-price increase above $100.
Arguments for Holding Rates
The annual core rate declined, and headline inflation matched forecasts, which led the second article to say rate-hike expectations could fall and equities could benefit.
Key facts
- August annual CPI
- 3.4%, unchanged from July
- August monthly CPI
- Up 0.4%, after a 0.1% increase in July
- August annual core CPI
- 2.4%, down from 2.5% in July
- August monthly core CPI
- Up 0.3%, compared with a 0.2% forecast
- Gasoline prices
- Up 3.9% in August and responsible for more than one-third of the monthly all-items increase
- Energy prices
- Up 2.1% during the month and 16.3% over the year
- Shelter and food
- Shelter rose 0.3% monthly; food rose 0.1% monthly and 2.7% annually
Quotes
Nic Puckrin
Markets expert and former Goldman Sachs analyst
“The only thing that mattered for today’s print was the month-over-month core CPI increase – the measure that strips out volatile food and energy – and this has come in higher than the 0.2% expected.”
financialexpress.com
Sources
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