WASHINGTON: US consumer prices likely accelerated in August as the cost of gasoline rebounded after two straight monthly declines, which would reinforce financial market expectations that the Federal Reserve could raise interest rates next week.
The Labor Department’s Consumer Price Index report on Friday would follow strong readings in several key components of the Producer Price Index released on Thursday that feed into the Personal Consumption Expenditures price indexes, the inflation measures the US central bank tracks for its 2percent target.
Last week’s robust employment report for August boosted rate hike prospects after the odds diminished following comments by Fed Governor Christopher Waller at a Reuters NEXT Newsmaker event that he was inclined to argue in favour of keeping rates steady if data confirmed inflation pressures were cooling.
With oil prices climbing back above USD100 a barrel, inflation was set to remain elevated and broaden out, economists said. Others saw price pressures persisting because of tariffs on imports, most recently against Canada, one of the United States’ top trade partners. “What were thought to be temporary factors keeping inflation high now look to be persistent. The war-induced energy shock is now in its seventh month with no end in sight,” said Joe Brusuelas, chief economist at RSM. “The impact of tariffs on inflation, thought to be more of a one-time pass-through, is proving to be more enduring as the administration continues to use tariffs as a cudgel to obtain its political objectives in an ad-hoc fashion.”
The CPI likely increased 0.4percent last month after edging up 0.1percent in July, a Reuters survey of economists predicted. In the 12 months through August, consumer inflation was forecast to have advanced 3.4percent, matching July’s gain. Gasoline prices averaged USD4.192 a gallon in August, up from USD4.064 in July, data from the US Energy Information Administration showed.
A moderate rise was expected for food prices over the month, though the year-on-year increase was likely to stay around 3.0percent. Frustration over higher prices, especially for gasoline and food, has led to a sharp erosion in President Donald Trump’s approval ratings and could cost his Republican party control of the US Congress in November midterm elections.
TAME CORE CPI READING EXPECTED
Excluding the volatile food and energy components, the CPI is expected to have increased 0.2percent after a similar gain in July. The anticipated tame rise in the so-called core CPI inflation would reflect a moderation in rents, apparel prices as well as new motor vehicles among other categories. But higher jet fuel prices likely kept airfares elevated.
In the 12 months through August, core CPI inflation is forecast to have increased 2.4percent after advancing 2.5percent in July. It is running below core PCE inflation. Following Thursday’s PPI data, economists’ estimates for August’s core PCE price index ranged from as low as a 0.15percent gain to as high as a 0.28percent increase. Core PCE inflation rose 0.2percent in July.