CPI Inflation Report for August 2024: Key Updates and Analysis
Inflation in August reached its lowest level since February 2021, as reported by the Labor Department on Wednesday. The consumer price index rose by 0.2% for the month, aligning with expectations. The 12-month Inflation rate decreased to 2.5%, slightly below estimates and the lowest level in 3½ years.
However, core CPI, excluding volatile food and energy prices, increased by 0.3% for the month, slightly surpassing the 0.2% estimate. The 12-month core Inflation rate remained at 3.2%, in line with forecasts. This slight increase in core CPI is likely to deter the Federal Reserve from implementing a more aggressive interest rate cut at its upcoming meeting.
Stocks declined following the report, while Treasury yields showed mixed results. Traders are now anticipating a quarter percentage point interest rate reduction by the Federal Open Market Committee when it concludes its meeting on September 18. This is a shift from previous expectations of a 50 basis point cut.
Despite the gradual moderation of Inflation, housing-related costs continue to be a concern. The shelter component of the CPI, comprising around a third of the index, rose by 0.5%, with shelter prices increasing by 5.2% year over year. Food prices saw a minimal increase of 0.1%, while energy costs decreased by 0.8%.
Other notable changes in the report include a 1% decrease in used vehicle prices, a 0.1% decline in medical care services costs, and a 0.3% increase in apparel prices. Real earnings also showed growth, with average hourly earnings outpacing the monthly CPI increase by 0.2%.
Amidst these developments, the Fed has shifted its focus to a slowing labor market, with job creation decelerating since April. Regardless of the Fed’s decision at the upcoming meeting, markets are already reflecting anticipation of lower rates, with Treasury yields at their lowest levels in over a year. This comes as an inverted yield curve, a recession indicator, has recently reversed, signaling potential rate cuts and economic slowdown.
The report indicates a decline in Inflation, though it remains above the Fed’s 2% target. Some sectors have seen persistent or rising prices, such as airline fares, motor vehicle insurance, and hospital services. On the other hand, a reduction in energy costs has contributed to the overall decrease in Inflation figures. Gasoline prices, for example, fell by 0.6% in August and are down by 10.3% compared to a year ago.
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Emily Jensen, graduated from the London School of Economics and Political Science (LSE) in the UK in 2015 with a degree in Economics. She specializes in financial markets and international trade. After graduating, she worked as an analyst at an investment bank in London, where she developed expertise in global economic trends. She later transitioned into consulting, focusing on fintech ventures and providing insights into global economic developments. Emily is passionate about the intersection of finance and technology and aims to drive innovation in the financial sector.