US CPI: Headline and core inflation strengthen - Wells Fargo

According to analysts from Wells Fargo, today’s CPI data offered some relief to Federal Reserve officials that are worried about inflation. 

Key Quotes: 

“After three months of lower-than-expected inflation readings, the CPI index came in higher than what markets forecasted. Consumer prices rose 0.4 percent in August, which was the largest monthly jump since January. Leading the charge was a 2.8 percent rise in energy costs. Prices for gasoline had already been inching higher ahead of the Harvey-related surge late in the month.”

“To what will likely be a relief to Fed officials, core inflation rose 0.2 percent in August, which was the largest month gain since February. What’s more, the increase has a relatively “high” 0.2 percent, coming in at 0.248 percent before rounding. The strength can be traced to a rebound in core services.”

“Core goods prices posted another monthly decline of 0.1 percent amid further weakness in vehicle prices. On a year-over-year basis, core inflation continues to look rather anemic. Ex-food and energy, prices were up just 1.7 percent over the past 12 months.”

“Following the August gain, however, the recent trend looks stronger; over the past three months, the core index has risen at a 1.9 percent annualized pace. 

“August’s strong gain should help alleviate concerns among Fed members that the slowdown in inflation that began in the spring is set to continue. That said, with some components like gasoline and hotel prices getting a boost late in the month from storm activity, we suspect Fed members will continue to be cautious in interpreting recent movements.”

“FOMC members have continued to telegraph that they are set to announce the start of balance sheet normalization at next week’s meeting. We do not expect the inflation data to get in the way of that plan. What is likely to be affected, however, is the Fed’s Summary of Economic Projections.”