August CPI: Off the boil but still hot

Wells Fargo Research Team Wells Fargo

Summary

A softer increase in the August CPI lends credence to the Fed's view that the flurry of inflation experienced earlier this year will prove "transitory." The headline Consumer Price Index rose 0.3%, with the core inching up just 0.1%. Used cars and travel services–the biggest drivers of the surge in inflation this spring–fell over the month. However, inflation remains strong for food, housing, and other goods. Inflation may be coming off the boil, but with supply issues for both goods and labor lingering, it is still expected to remain hot well into next year.

Reopening in retreat

Consumer price inflation cooled more than expected in August, giving credence to the notion that this spring's surge in prices was indeed temporary. The Consumer Price Index rose 0.3%, the smallest monthly gain since January. Yet while prices in categories driving the increase earlier in the year have cooled off, others are picking up the baton. Inflation looks set to remain elevated as a result, prolonging the debate over how long "transitory" is.

Prices in categories that were the biggest inflation drivers this spring retreated in August and were largely responsible for the weaker print. Used car prices fell 1.5%, following the pattern of wholesale prices over the past few months. At the same time, reignited COVID concerns took a clear toll on travel-related prices, with airfare, car rental, and hotel prices all down over the month.

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Wells Fargo Research Team

Wells Fargo

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