CPI Increases more than Estimates in August, as Housing, Food, and Transportation Prices Rise!

Inflation in the United States is still under control in the United States according to both the consumer and producer prices, as the worst recession since WWII continues to weigh down on the general level of prices; however inflation seems to be picking up on monthly basis to reflect the recent improvement in economic activity in the world’s largest economy.

The consumer price index was released today by the U.S. Labor Department, as CPI rose in August by 0.4% compared with the prior reported flat estimate back in July and above median estimates of 0.3%, while compared with a year earlier CPI dropped by -1.5% following the prior reported drop of -2.1% and above median estimates of -1.7%.

Core CPI on the other hand, rose inline with expectations, as core CPI rose by 0.1% in August and also inline with the prior reported estimate back in July, while compared with a year earlier, core CPI continued to ease, as it rose by 1.4% inline with median estimate and following the prior reported rise of 1.5%.

The rise reflected a rise in housing, food, and transportation prices, whereas gasoline prices continued to ignite price pressures, however, inflation is still well below the Feds’ target for inflation, though the Feds use personal consumption expenditures as their main gauge to inflation, but CPI is also considered the widest gauge for inflation.

The Feds signaled earlier that inflation risks are still well under control and some members of the Feds even expressed their concern for an extended period of disinflation, however, I don’t really believe that the U.S. economy will experience an extended period of disinflation, as the huge increase in money supply would help in increasing upside risks to inflation over the medium to long terms.

The Feds however believe that inflation will remain subdued for some time, as rising spare capacity continues to weigh down on prices, and accordingly inflation shouldn’t pose a threat at least for the time being, which means that the Feds can continue to focus on reviving economic growth and lead the economy back to its long term growth potentials.

Moreover, the U.S. released the current account for the second quarter of this year, the current account deficit narrowed in the second quarter to $98.8 billion compared with the prior revised deficit of $104.5 billion, as conditions were still rather shaky during the second half of this year, whereas the recovery became more visible during the third quarter of this year.

The US also released the Net Long Term TIC flows for the month of July, as the surplus dropped to $15.3 billion compared with the prior revised surplus of $90.2 billion in June and worse than median estimates, while the Total Net TIC Flows in July showed a deficit of -$97.5 billion widening from the prior revised deficit of -$56.8 billion.

Industrial production continues to rise in the United States amid the recent improvement in economic activity, as industrial production rose in August by 0.8% following the prior revised rise of 1.0% back in July, while capacity utilization an inflationary measure of how much resources are being used rose in August to 69.6% from the prior revised estimate of 69.0%.

The rise in production and capacity utilization indeed signal that the U.S. economy is on the right track to recovery, though the recovery is expected to take a long time before it fully materializes, yet we are getting there, as the U.S. economy seems to have put the worst of this recession behind it and there’s only room for further improvement at least for the time being.