• Consumer prices rose 0.6% MoM and was up 3.7% YoY

• Core CPI rose a subdued 0.3% MoM and 4.3% YoY

• Core services ticked higher

• Core goods prices declined by a modest 0.1%

• Inflation data leaves Fed outlook unchanged

Inflation in the United States posted its biggest monthly increase this year in August as consumers faced higher prices on energy and a variety of other items but a moderate rise in underlying inflation could encourage the Federal Reserve to keep interest rates on hold.

The consumer price index, which measures costs across a broad variety of goods and services, rose 0.6% for the month, the largest gain since June 2022 and was up 3.7% YoY after July's 3.2% rate. The increase in the headline rate was a function of a surge in the cost of gasoline, in line with the jump in oil prices to their highest in 10 months. Energy index was up 5.6% MoM, an increase that included a 10.6% surge in gasoline and fuel oil prices jumped 9.1%. Gasoline was the largest contributor to monthly CPI rise, accounting for over half of the increase. Meanwhile, food prices (0.2% MoM) matched last month’s gain, as some deceleration in food at home (+0.2% from 0.3%) were offset my stronger gains in prices for food away from home (+0.3% from 0.2%).

However, excluding volatile food and energy, core CPI increased 0.3% MoM from 0.2% in each of the previous two month amid declining prices for used cars and trucks. On annual basis, core price index slowed for the fifth month to 4.3% from 4.7% the previous month. Federal Reserve officials focus more on core as it provides a better indication of where inflation is heading over the long term. Home prices and rents have also been major contributors to persistent inflation, and in August, shelter costs, which make up about one-third of the CPI weighting, increased for the 40th consecutive month by 0.3% MoM and climbed 7.3% YoY. Within shelter, the rapid rise in rents is finally showing signs of easing - but progress remains slow. Rents were up 7.8% YoY down from a peak of 8.8% YoY earlier this year, and the slowest rate of increase since last fall. But on a month-to-month basis, rent increases actually sped up slightly in August, rising 0.5%, from 0.4% in July. Owner’s equivalent rent, a key measure that gauges what homeowners believe they could get in rent, increased 0.4% and 7.3% respectively. Elsewhere in the report, airfares jumped 4.9% but were still down 13.3% from a year ago. Used vehicle prices, an important contributor to inflation during its rise in 2021 and 2022, declined 1.2% MoM and are down 6.6% YoY. Transportation services rose 2% on the month.

Price growth across services rose 0.4% MoM, matching last month’s gain, and remain at an elevated 5.9% YoY. Price growth across non-housing services accelerated to 0.4% MoM in August – the strongest monthly gain in five months. Its twelve-month change remains at an elevated 4%. The core services ex-housing, which the Fed has been emphasising tick higher to around 0.3% MoM and 3.8% YoY. Core goods prices declined by a very modest 0.1% MoM, with most of the pullback attributed to another sizeable decline in used vehicle prices.

Source: BIMB Securities Research - 14 Sept 2023