US inflation undershoots forecasts in August, core CPI picks up

The rate of increase in the cost of living in the US slowed sharply last month, as food inflation slowed and energy prices fell.

Core consumer price gains on the other hand picked up a tad.

According to the US Department of Labor, the rate of increase in the country's headline Consumer Price Index slowed from 2.9% in July to 2.5% for August.

Economists had pencilled in a reading 2.6%.

In month-on-month terms, food prices edged up by 0.1% after a 0.2% increase in June, whilst energy costs dropped by 0.8%.

The annual rate of CPI gains at the core level was unchanged from the month before at 3.2%, as expected.

Nonetheless, core CPI was up by 0.3% over the month (consensus: 0.2%), as shelter price inflation picked up by a tenth of a percentage point from July to 0.5%, while the transportation services prices jumped by 0.9%.

Paul Ashworth at Capital Economics highlighted how 70% of the gain in core CPI was the result of the 5.2% year-on-year rise in shelter prices.

"The 3m annualised core CPI inflation rate rebounded, but only to 2.1% from a weak 1.6%. Overall, inflation appears to have been successfully tamed but, with housing inflation still refusing to moderate as quickly as hoped, it hasn’t been completely vanquished.

"Under those circumstances, we expect the Fed to take a measured approach to cutting interest rates."

Lindsay James at Quilter Investors on the other hand believed that the market would not be "overly concerned" by shelter inflation given that headline CPI was nearing 2%.

"As a result, inflation has gone from being the most important data source for the Fed, to probably becoming the second most important after the employment numbers."

-- More to follow --