August US Consumer Prices (CPI) Rose 0.4%, Core Increase 0.2%

US consumer prices rose 0.4% in August compared with consensus forecasts of a 0.3% monthly gain. The year-on-year rate increased to 1.9% from 1.7% with expectations of a smaller increase to 1.8%.

Underlying prices also rose 0.2% which was in line with consensus expectations with the year-on-year increase remaining at 1.7% compared with consensus forecasts of a slight decline to 1.6%.

Energy prices rose 2.8% on the month as crude oil prices continued to move higher from late June with a sharp 6.3% increase in gasoline prices.

The price of energy services, however, declined for the third successive month.

Food prices increased 0.1% on the month with a 1.1% annual gain.

The price of new motor vehicles was unchanged after 6 consecutive monthly declines, but the price of used vehicles continued to decline for the month with a 3.8% annual decline.

Apparel prices edged higher on the month, but still registered an annual decline.

Within the services sector, there was a firm 0.4% monthly increase outside the energy sector with a year-on-year increase of 2.5% while shelter and transport services inflation rates were 3.3% and 3.5% respectively.

There was no significant impact on the data from hurricane Harvey.

The higher rates of inflation in the services sector should lessen concerns within the Federal Reserve that inflation is running too low, although there will still be doubts surrounding the goods sector.

Given that recent dollar weakness will feed through into higher prices across a wide spectrum of items, overall confidence in inflation reaching the 2% target should increase to some extent.

The dollar gained ground following the data with USD/JPY briefly testing the 111.00 level before correcting significantly lower.

Treasuries were weaker following the data, although losses reversed quickly with the 10-year yield unable to hold above 2.20%.

Tim is a contributing author to He is an economist and has been involved in financial markets for over 20 years as an analyst. He specialises in global economic trends, macro policy and central banks. Extensive knowledge, experience and data mining is used to anticipate trends in equities, bonds and forex with a contrarian slant. He is a graduate of the University of York with a degree in Economics/Econometrics.