There are a few important reports on inflation pressures in America worth mentioning this morning. First, the consumer price index (CPI) rose by 0.1 percent in August, according to the Bureau of Labor Statistics. That was in line with estimates and a slight slowdown from July. Core CPI, though, which excludes the volatile food and energy components, increased by 0.3 percent in August, above forecasts and resulting in the fastest annual gain (2.4 percent) since 2008. Big drivers of last month’s uptick in core inflation included a 1.1 percent jump in used-car prices and a 0.9 percent rise in medical care services costs. However, the latter may be a bit misleading because CPI only looks at out-of-pocket expenses, so the increase likely will not be nearly as strong in the Federal Reserve’s preferred inflation gauge (the PCE deflator) released later this month.
As for the producer price index (PPI), this measure of wholesale inflation pressures also firmed in August, with annual rates of growth increasing across the board. Interestingly, though, most of the recent PPI gains have been driven by services costs, whereas the prices for some materials and components in consumer goods have actually retreated recently (resulting in improved margins). This is welcome news given the potential for tariffs to raise input costs and suggests that some inflationary spillovers from the trade war for now have been partially offset by the strengthening U.S. dollar and bargaining with overseas suppliers. Altogether, price pressures in America have picked up a bit recently but remain low enough to give Fed officials room to maneuver on monetary policy. More importantly, the low inflation environment has provided many Americans with some of the best real wage growth in years, which will be crucial for sustaining consumer spending going forward.
Sources: Econoday, U.S. DoL, FRBSL