US inflation data argue for small rate cut

The data

US consumer prices rose by 0.2% month-on-month in August. The more important core rate, which excludes volatile energy and food prices, was actually 0.3% month-on-month. The consensus and we had both forecast a monthly rate of 0.2%. However, almost half of the economists had only expected 0.1%. In year-on-year terms, the headline rate, which includes all goods and services, fell from 2.9% to 2.5%; excluding energy and food, it remained at 3.2%.

... and the background

After several relatively favorable inflation reports, the figures for August surprised to the upside. Consumer prices only rose by 0.2% overall from July. However, this was due to the fall in the price of gasoline and natural gas and the only slight increase in food prices.

The more important core rate, which excludes energy and food, amounted to 0.3%. Only the figures for core goods were favorable here at -0.2%, which was roughly in line with the trend of recent months. In contrast, core service prices rose by 0.4%, which was a stronger increase. Firstly, some highly volatile (and therefore less informative) prices such as those for airline tickets and hotel accommodation were for the acceleration. Secondly, rents/imputed rents for owner-occupiers, which are actually quite stable, also rose more strongly again. However, industry data on rents for new contracts indicate that prices here should tend to rise more slowly in the future. Overall, we therefore believe that inflation remains on a downward trend. However, this trend is more bumpy than some might have expected after the last three favorable inflation reports.

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