Definitely a mixed bag in the Consumer Price Index inflation report for August released yesterday.
I think the mixed results lower the odds of an aggressive 50 basis point interest rate cut at next week’s Federal Reserve meeting. But they keep the odds of a cut–most likely 25 basis points–at 100%.
All-items inflation rose at an annual rate of just 2.5% in August, the Bureau of Labor Statistics reported today. That was the lowest rate in more than three years. And an improvement from the 2.9% rate in July.
But the core index for all items less food and energy rose 0.3% in August, after rising 0.2% in July. The core index was up at 3.2% annual rate in August. That was higher than economists had projected.
And the index for shelter inflation continued to present problems for the policy-makers at the Fed. The index for shelter rose 0.5% in August and was the main factor in the all items increase. Housing costs accounted for more than 70% of the overall year-over-year increase. Policymakers are skeptical that the CPI offers an up-to-date snapshot of housing inflation. Other real-time indicators have shown rents easing considerably, or even falling, in major cities for much of the year. But according to the BLS, two key rent gauges are showing little relief compared to previous months.
Showing the importance of the shelter number and the high degree of uncertainty about the figure, a Wednesday blog post from the White House’s Council of Economic Advisers noted that while core inflation rose 3.2% over the past year, that measure clocked in at a low 1.8% when leaving out housing costs.
Ah, if only the real world were that simple.
