The CPI report could fan concerns of stagflation following recent downbeat news on the labour market
[WASHINGTON] US consumer prices rose more than expected in August and the annual increase in inflation was the largest in seven months, but the data is not expected to prevent a much-anticipated interest rate cut from the Federal Reserve next week against the backdrop of labour market weakness.
The Consumer Price Index (CPI) rose 0.4 per cent last month after increasing 0.2 per cent in July, the Labor Department’s Bureau of Labor Statistics (BLS) said on Thursday (Sep 11). In the 12 months through August, the CPI advanced 2.9 per cent, the largest increase since January, after climbing 2.7 per cent in July.
Economists polled by Reuters had forecast consumer prices would rise 0.3 per cent and increase 2.9 per cent on a year-over-year basis.
The CPI report could fan concerns of stagflation following recent downbeat news on the labour market. The pass-through from US President Donald Trump’s sweeping tariffs has been gradual, but prices could accelerate in the months ahead as businesses have now depleted their pre-tariff inventories. Business surveys have for some time been signalling imminent price increases.
“The evidence is overwhelming that more tariff-related inflation is coming, though it may still be several months before it passes through fully,” said Stephen Stanley, chief economist at Santander US Capital Markets.
Excluding the volatile food and energy components, the CPI 0.3 per cent after gaining 0.3 per cent in July. In the 12 months through August, the so-called core CPI inflation increased 3.1 per cent. That followed a year-on-year rise of 3.1 per cent in July.
The US central bank, which tracks the Personal Consumption Expenditures (PCE) price indexes for its 2 per cent inflation target, is expected to cut rates at its policy meeting next Wednesday. A quarter-percentage-point reduction has been fully priced in. The Fed paused its easing cycle in January because of uncertainty over the inflationary impact of import duties.
Prior to the CPI data, economists estimated core PCE inflation increased 0.3 per cent in August for a third consecutive month, which would translate to an annual increase of 3.1 per cent. That would be an acceleration from a 2.9 per cent increase in July. REUTERS
