The recent run-up on consumer prices cooled a bit in August.

Inflation Higher Than Normal BUT Prices Cooled

Consumer prices softened in August, much welcomed news by the Federal Reserve.  The Fed has been saying for months now that the strong burst of inflation during 2021 has been tied to the oddities/disruptions of the pandemic and that inflation ought to be temporary.

Most economists agree.  All it takes for consumer prices to slow is for supply chain disruptions to normalize and businesses to adapt.

The question is how quickly the bump in prices will fade and how much will consumer prices slow down.

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Price Gains Moderated to + 0.3% in August

The US Department of Labor reported that the Consumer Price Index increased 5.3% y/y in August, a slower annual pace than July’s increase of 5.4%.

On a monthly basis, the Labor Department indicated that price gains moderated to a -0.3% increase between July and August, a drop of -0.5% from July and a larger slowdown than economists (surveyed by Bloomberg) anticipated.

Core Inflation Also Cooled

Core inflation, underlying price trends excluding food and fuel prices, also cooled.  Core inflation on a month-to-month basis increased just slightly by 0.1%, down from 0.3% in July.  On a year-to-year basis, core inflation increased 4% in August, down from 4.3% in the July report.

According to Guy Lebas, chief fixed income strategist at Janney Capital Management,“We’re seeing the unwinding of a lot of factors that pushed inflation prints higher early in the summer.  We’ll see these rolling supply and demand imbalances gradually diminish into 2022.”

Overall Price Index Mixed

Airline fares dropped in August, according to the Labor Department, as did prices for used cars.

However, prices are up for new cars and for housing costs across all price points nationwide.

Lebas believes housing costs will help keep inflation a bit higher (in the mid-2 percent range) into next year.  Lebas said, “(That’s) higher than it’s been historically, but not scary high.  If that happens, it’s a win for the Fed.”

Ian Shepherdson, chief economist with Pantheon Macroeconomics, said, “At the margin, the recent data will dampen some of the more excitable inflation forecasts in the market and at the Fed.”

Thanks to The New York Times and US Labor Department.



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