US consumer inflation picks up in August

[WASHINGTON] US consumer prices accelerated in August as the cost of gasoline rebounded after two straight monthly declines, bolstering financial market expectations that the Federal Reserve could raise interest rates next week.

The Consumer Price Index increased 0.4 per cent last month after edging up 0.1 per cent in July, the Labor Department’s Bureau of Labor Statistics said on Friday (Sep 11). In the 12 months through August, consumer inflation advanced 3.4 per cent after rising by the same margin in July.

Economists polled by Reuters had forecast the CPI increasing 0.4 per cent over the month and climbing 3.4 per cent year-on-year. Excluding the volatile food and energy components, the CPI rose 0.3 per cent last month after gaining 0.2 per cent in July. The so-called core CPI increased 2.4 per cent year-on-year in August after rising 2.5 per cent in July.

The US central bank tracks the Personal Consumption Expenditures (PCE) price indexes for its 2 per cent inflation target.

The government reported on Thursday an increase in the Producer Price Index in August, with strong rises in several key components that feed into the calculation of PCE inflation. That added to last week’s robust employment report for August in boosting rate hike prospects next week.

The odds of a rate increase had diminished following comments by Fed Governor Christopher Waller at a Reuters NEXT Newsmaker event last week that he was inclined to argue in favour of keeping rates steady if data confirmed inflation pressures were cooling.

Oil prices climbed back above US$100 a barrel on Thursday, while diesel prices are at record highs, suggesting inflation was set to remain elevated and broaden out.

Some economists saw price pressures persisting because of tariffs on imports, most recently against Canada, one of the United States’ top trade partners.

Frustration over higher prices, especially for gasoline and food, has led to a sharp erosion in President Donald Trump’s approval ratings and could cost his Republican party control of the US Congress in the November midterm elections.

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US producer prices increase as expected in August

After Thursday’s PPI data, economists’ estimates for August’s core PCE price index ranged from as low as a 0.15 per cent gain to as high as a 0.28 per cent increase. Core PCE inflation rose 0.2 per cent in July. Estimates for the year-on-year increase in core PCE inflation ranged from 3.2 per cent to 3.3 per cent. Core PCE inflation advanced 3.3 per cent in the 12 months through July.

The August PCE inflation report will include changes to the methodology, which some economists say could lower the core inflation rate by a couple of basis points.

Ahead of the CPI report, financial markets priced in a roughly 70 per cent chance of a 25-basis-point rate hike at the Fed’s September 15-16 policy meeting, according to CME’s FedWatch tool. The Fed’s benchmark overnight interest rate is currently in a 3.50 per cent-3.75 per cent range.

Fed Chairman Kevin Warsh last month said the central bank will “have work to do” if policymakers don’t get the confidence they need that inflation is heading down to 2 per cent.

But Trump is pressuring the Fed to cut rates, posting on social media last week “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.” Economists have blamed what they called political intimidation for the surge in yields on long-term US government bonds. Some expected the Fed to tighten policy next Wednesday to underscore its independence. REUTERS