U.S. August CPI: Housing Inflation Remains Firm, Dampening 50bp-Cut Expectations

Economic

Data Interpretation

Summary:

U.S. August CPI rose 2.5% YoY, easing for the 5th month, according to data from the U.S. Bureau of Labor Statistics on Wednesday. However, persistent housing inflation led to a slightly higher-than-expected core CPI increase of 0.3%, which suggests that the Federal Reserve might proceed cautiously with rate cuts.

On September 11, ET, the U.S. Bureau of Labor Statistics released the August CPI report.

CPI grew by 0.2% on a monthly basis in August, compared to the expected 0.2% and the previous 0.2%.

CPI grew by 2.5% year-on-year in August, while the expected rate was 2.6% and the previous rate was 2.9%.

Core CPI rose by 0.3% from a month ago in August, compared to the expected 0.2% and the previous 0.2%.

Core CPI rose by 3.2% from a year earlier, while the expected rate was 3.2% and the previous reading was 3.2%.

A 2.5% YoY increase in CPI was sharply lower than the previous 2.9% reading, marking the lowest level since February 2021. The 0.2% monthly growth was in line with expectations and the same as the previous rate. However, the 0.3% monthly growth of core CPI was higher than expected as well as the previous 0.2%, becoming the largest growth in 4 months.

Core CPI ascended unexpectedly in August, mainly due to the accelerated growth of the housing inflation, which grew by 0.5% MoM, the highest growth this year, and by 5.2% YoY. Owners' equivalent rent, or OER, increased by 0.5%, higher than July's reading.

Food prices rose by 0.1% in August, 0.1 percentage point lower than in July. After holding steady in July, the energy price dropped 0.8% MoM in August. In the auto market, used car prices declined by 1.0%, slower than the previous drop of 2.3%. At the same time, the insurance for automobiles rose by 0.6%. The airline fares, after declining for 5 consecutive months, rose by 3.9% in August.

Despite the headline inflation in the U.S. making a solid step toward the Fed's target, core inflation remains sticky due to rising housing prices. Concerns over persistent inflation might prompt the Fed to proceed with rate cuts more cautiously. Following the data release, the market reduced bets on a 50-bps rate cut by the Fed in September. Currently, there's an 85% probability of a 25-bps cut in September, while the chance of a 50-bps cut stands at 15%.

August CPI Report

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U.S. August CPI: Housing Inflation Remains Firm, Dampening 50bp-Cut Expectations

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August CPI Report﻿

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August CPI Report