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United States headline inflation picks up in August

Staff Writer |
Consumer prices finally picked up in August, marking the largest increase since January after a streak of weak prints.

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Adjusted for seasonal factors, consumer prices rose 0.4% in August over the last month, a significant increase from the 0.1% rise in July.

They were pushed up by higher gasoline prices, which tend to shoot up during the key summer months due to increased driving. However, the spike is also a result of the impact of Hurricane Harvey, which caused gas shortages and oil refinery supply disruptions in late August.

The Bureau of Labor Statistics stated that Hurricane Harvey had a very small effect on survey response rates in August, and only affected two price collection areas for the report.

Inflation rose from 1.7% in July to 1.9% in August from the previous month, a seven-month high. The increase was predominately driven by higher energy prices, particularly for gasoline and fuel, and came in above market expectations of 1.6%.

Annual average inflation also rose from 1.9% in July to 2.0% in August, a nearly three-year high.

Core consumer prices, which exclude food and energy prices, rose 0.2% month-on-month in August, up from the 0.1% increase in July and the strongest increase in seven months. Core inflation was 1.7% in August for the fourth month in a row.

Core inflation is one of the measures most closely followed by the Federal Reserve to determine the extent of inflationary pressures on the economy. This month’s print reasserts that underlying inflation remains low, again missing the Fed’s target of 2.0%.

The August inflation report came out just days before the Federal Reserve’s September monetary policy meeting.

The Fed will take into consideration the print as well as the effects of Hurricanes Harvey and Irma on prices that will be reflected in September’s consumer price report.

The rise in consumer prices and headline inflation in August is likely not enough for the Fed to undertake a rate hike before December, especially given the low core inflation print.

In line with the Federal Reserve’s outlook, our panel expects inflation to trend higher later this year.

A tight labor market should cause inflationary pressures to build through the remainder of the year.

FocusEconomics Consensus Forecast participants expect inflation to average 2.1% in 2017, which is unchanged from last month’s forecast.

For 2018, the panel expects inflation to average 2.2%, which is unchanged from last month’s estimate.

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