Inflation pressures remain mute, though deflation is still only a remote possibility. The U.S.
consumer price index rose 0.3% in August, largely because of a jump in gasoline prices and partly
because of slightly higher food costs and a reversal in medical care costs (following the first decline in 35 years).
The yearly inflation rate edged down to 1.1%. Core prices were unexpectedly flat in the month, keeping the annual rate at 0.9% for the fifth straight month and near half-century lows. Modestly higher shorter-term metrics for core prices (1.3% 3-month annualized rate and 1.1% 6-month) reinforce the stabilizing trend in underlying inflation, thereby damping deflation fears.
In August, the core index was held back by modest declines in clothing (as retailers cranked up back-to-school sales) and in recreation items (reflecting weak discretionary demand). As well, rents were flat in the month amid a glut of vacant homes on the market.
The Bottom Line: Consumer prices are neither inflating nor deflating. The CPI report won’t compel the Fed to introduce new easing measures at Tuesday’s meeting. But continued sub-par growth and high unemployment likely will later in the year.
Sal Guatieri
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