U.S. Consumer Prices Up 0.2%, Core Inflation Exceeds Expectations

Inflation Edges Up: Core CPI Higher Than Expected

The Consumer Price Index (CPI) for August 2024 showed a modest increase, with core inflation surpassing expectations. This development has significant implications for traders and investors across various markets.

CPI Overview

The CPI rose 0.2% in August on a seasonally adjusted basis, matching July’s increase. The year-over-year inflation rate stood at 2.5%, marking the smallest 12-month increase since February 2021. However, the core CPI, which excludes volatile food and energy prices, climbed 0.3%, exceeding the previous month’s 0.2% rise.

Key Sectors Driving Inflation

Shelter costs emerged as the primary driver of inflation, with a 0.5% increase in August. This component alone accounted for over 70% of the core CPI’s annual rise. Other notable increases included:

• Airline fares: Up 3.9%
• Motor vehicle insurance: Rose 0.6%
• Education and apparel: Both saw increases

Food and Energy Trends

The food index inched up by 0.1%, with food away from home rising 0.3%. Energy prices, however, declined 0.8%, led by drops in gasoline, electricity, and natural gas prices. Over the past year, the energy index has fallen 4.0%, with gasoline prices down 10.3%.

Market Implications

The higher-than-expected core inflation rate suggests persistent underlying price pressures in the economy. This data point is crucial for traders, as it may influence the Federal Reserve’s monetary policy decisions in the coming months.

Market Forecast

Given the stronger-than-anticipated core inflation, we maintain a cautiously bullish outlook on the U.S. dollar in the short term. Bond yields may also see upward pressure, potentially impacting equity markets. Traders should closely monitor upcoming Federal Reserve communications for any shifts in policy stance in response to this inflation data.