Markets lock in 25bps Fed rate cut as US CPI hits 2.9% in August

CPI rose 2.9% in August, locking in a 0.25% rate cut from the Federal Reserve next week, plain and simple. The monthly number came in hot at 0.4%, jumping from 0.2% in July, according to the U.S. Bureau of Labor Statistics.

No more “will they or won’t they.” This print gives the Fed zero excuses. Inflation’s slowing just enough to ease the pressure, and the Fed’s going to act.

The CPI-U now sits at 323.976, up 2.9% year-over-year. The CPI-W, which tracks inflation for wage earners, rose 2.8% annually, landing at 317.306. The C-CPI-U came in at 2.7% for the year.

All those numbers moved 0.3% month-on-month before seasonal adjustment. Oh, and one caveat; they warned the last 10 to 12 months of data might be revised.

Shelter, food, and energy push core prices again

Shelter was the single biggest driver of the monthly gain. It jumped 0.4% in August. Rent? Up 0.3%. Owners’ equivalent rent? Also 0.4%. People who stayed at hotels or rentals paid 2.3% more than they did in July.

The food index climbed 0.5% in August after being flat in July. Food at home rose 0.6%. All six grocery store categories went up. Tomatoes shot up 4.5%, apples jumped 3.5%, and fruits and vegetables overall rose 1.6%.

Beef was up 2.7%, while meats, poultry, fish and eggs saw a 1.0% hike. Nonalcoholic drinks? Up 0.6%. Cereal, dairy, and bakery products each moved up 0.1%.

Food away from home got more expensive too. The index rose 0.3% in August. Full-service restaurants increased 0.4%, and fast food joints ticked up 0.1%.

Over 12 months, food at home is up 2.7%, and meats, poultry, fish, and eggs soared 5.6%. Nonalcoholic beverages rose 4.6%, and fruits and vegetables went up 1.9%. Cereals and bakery climbed 1.1%, and dairy rose 1.3%.

Food away from home is up 3.9% over the year. Sit-down meals rose 4.6%, and fast food is up 3.2%.

Airfares spike, gas jumps, medical care dips

The energy index bounced back 0.7% in August after a 1.1% drop in July. Gasoline jumped 1.9%, even though unadjusted prices rose just 0.3%. Electricity crept up 0.2%, while natural gas dipped 1.6%.

Over the year, energy rose just 0.2%. Gasoline is down 6.6%, fuel oil down 0.5%, but electricity is up 6.2%, and natural gas jumped 13.8%.

Stripping out food and energy, core CPI rose 0.3% in August, same as July. That’s a 3.1% annual gain. Beyond shelter, big movers were airline fares, which surged 5.9% in August after a 4.0% rise in July. Used cars and trucks gained 1.0%, apparel went up 0.5%, and new vehicles rose 0.3%. Household furnishings and operations rose 0.2%.

Some stuff dropped. Recreation and communication both fell 0.1%. Medical care slid 0.2%, after rising 0.7% in July. Dental services dropped 0.7%, prescription drugs slipped 0.2%, and physician services rose 0.3%. Hospital services stayed flat.

Annually, shelter rose 3.6%, medical care is up 3.4%, furnishings and operations are up 3.9%, used cars and trucks gained 6.0%, and vehicle insurance rose 4.7%.

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