Economic Insights on US Consumer Prices

Investing.com — Headline US consumer prices rose by 0.2% in August, matching July’s rate. The core figure, however, accelerated slightly, indicating persistent inflationary pressures.

The month-on-month headline US consumer price index met economists’ expectations, with the annual figure slowing to 2.5%, down from 2.9% in July.

Meanwhile, core consumer prices—excluding volatile items like food and fuel—increased by 0.3% month-on-month, exceeding estimates of 0.2%. Year-over-year, this reading matched forecasts at 3.2%, equaling July’s pace.

Analysts at Citi observed that the core number’s strength primarily came from a surprisingly robust increase in shelter costs, particularly noting a 0.5% rise in the index for owners’ equivalent rent, up from 0.4% in July.

Owners’ equivalent rent estimates the cost for a homeowner to rent out their house and is modeled to track real estate market values, though its reliability has faced skepticism from some economists.

Analysts commented, “The acceleration in owners’ equivalent rent (OER) was surprising but we expect it reflects the start of a more volatile period for OER,” anticipating oscillation between stronger and weaker readings in the coming months, averaging around 0.2%-0.3%.

Despite this, they noted that shelter’s smaller weighting in the core personal consumption expenditures (PCE) price index, alongside softer medical costs, indicates a more modest measurement than its CPI counterpart. The underlying PCE results, which the Federal Reserve uses as a key inflation gauge, will be released next Friday.

This PCE release will be pivotal for the Fed following their recent 50-basis point rate cut, the first since March 2020. The updated dot plot forecasts a dip in the benchmark fed funds rate to 4.25% to 4.5% by the end of 2024, implying either another substantial rate cut or two smaller adjustments this year.

At a press conference after the announcement, Fed Chair Jerome Powell downplayed recession fears, citing cooling price gains and a solid labor market, stating, “The US economy is in a good place and our decision today is designed to keep it there.”