August CPI Report shows rising inflation, continuing economic streak

With the release of the August Consumer Price Index (CPI) report on September 11th, inflation has been shown to have increased once again, extending the economy's streak of price rises.

A shopping cart in a supermarket, Image: 123RF.

The report, released today by the U.S. Bureau of Labor Statistics (BLS), has listed a variety of metrics showing price rises. YoY headline inflation rose to 2.9%, up from the 2.7% reported in July. The total monthly increase, seasonally adjusted, surpassed 0.4%, above the 0.2% in July. Core inflation, a metric that excludes food and energy due to volatility concerns, rose 3.1% YoY, and an individual 0.3% increase MoM; food inflation picked up 3.2% YoY with a 0.5% rise in August.

Additionally, the index for the cost of groceries rose 0.6%, and other food products rose 0.3%. Energy costs rose 0.7% MoM, with gasoline up 1.9%, and energy overall up 0.2% YoY.

In the headline inflation rise, shelter contributed the most to the monthly increase, indicating that the real estate market is experiencing heavy pressure cost-wise. However, other goods like airline fares, cars, and clothing also made the list.

This inflation report is by no means a good sign for the economy long-term. Inflation remains above the Fed's golden number of 2%, with core goods and shelter being even farther away from this inflation target. This coincides with rapidly rising unemployment, and an over one million job revision made for job losses from last year leading up into this year.

However, this report may be good news for investors, as the moderate but not heavy rise in inflation does not prevent significantly the Fed from not cutting interest rates this month; the linear inflation growth, combined with poor labor results, has proven to be a signal for the Federal Reserve to make a 25 or even 50 basis point rate cut.

Oliver Pursche from Wealthspire Advisors, reacted to the August CPI by stating to Reuters, "The slightly elevated CPI and core CPI being in line with expectations reinforces the notion that the Fed is going to cut rates next week. The higher unemployment filings suggest there's a possibility it could be 50 basis points as opposed to 25... although I think that's still only a remote possibility."

James Kightley, Chief International Economist of ING, reiterated Pursche's speculation. "Inflation remains hotter than hoped, but the Fed's focus is jobs. On the face of it, this hints at a pick-up in the pace of layoffs in an environment of already weak hiring and will reaffirm expectations of a 25-bp Fed rate cut next week," Knightley affirmed.