US CPI: Current inflation environment is just what the Fed wants to see - Wells Fargo

Today’s data showed that the CPI rose 0.2% in August while the annual rate eased from 2.9% to 2.7%. Analyst at Wells Fargo considered that core inflation came in a bit soft, but they see the trend remains gradually higher and should keep the Federal Reserve on track to more rate hikes. 

Key Quotes: 

“August consumer price inflation came in a bit softer than markets were expecting, with headline CPI increasing 0.2% and the core advancing 0.1%. The modest gain in core inflation comes on the heels of a strong print for July (0.24% before rounding), and does not shake our confidence that the underlying trend in inflation remains upward given rising input costs, including labor.”

“Where we see more risk of a near-term slowdown is outside the core index. While a 1.9% increase in energy prices helped lift the headline in August, we expect oil prices to decline through the end of the year, before rising again in 2019. Food prices ticked up 0.1% last month as the cost of eating out rose 0.2%.”

“In many ways, the current inflation environment is just what the Fed wants to see. Core inflation has slowly moved back up to levels consistent with the FOMC’s target. Yet there are few signs of inflation blowing far past the Fed’s comfort zone and forcing the Fed to raise rates faster than expected; inflation expectations—especially longer-term views—have been little changed. We see core CPI running around 2.3% through the rest of this year before picking up in 2019.”