US: Highest inflation in more than 10-years – Nordea

Anders Svendsen, analyst at Nordea Markets, explains that the momentum in the core US CPI continued to trend higher in the August print and is at the highest since May 2006 and the Core CPI is now at the highest in more than 10-years.

Key Quotes

“Inflation edged two tenth higher in August to 2.4% y/y (0.3% m/m), slightly more than both we and most other analysts expected. It was especially prices on medical-care services and used cars that took inflation higher, whereas shelter costs at 0.2% m/m was at its lowest this year.”

“The CPI measure has been above or at 2% since March-2018, to a large extent driven by growth in core service prices. The last few months, growth in core goods prices have risen slightly and is at the highest since 2012.”

“The Fed puts emphasis on the core PCE measure which has dwindled from around 2% y/y towards the end of last year to 1.6%. The Fed has indicated that they view most of this drop as temporary, and if the latest CPI data can be used as a guide, we might see a pick-up also in core PCE inflation. However, we would probably need to see this measure running above 2 % for a prolonged period for the Fed to view inflation developments to be in line with its symmetrical 2 % target. We do expect core inflation to creep higher for at least the next year.”