Headline Inflation Cools in September, Core Inflation Remains Hot
US CPI edged up 0.1% MoM to 8.3% YoY in August, down from 8.5% YoY in July. The 0.8% MoM increase in food prices is the smallest monthly increase since December 2021 but still has the index up 10.9% YoY. The food at home index grew 0.7% MoM, and the food away from home index grew 0.9% MoM. The food at home index rose 13.5% YoY, the fastest since 1979. Energy prices fell -5.0% MoM in August to add to a -4.6% MoM decline in July. The gasoline index fell -10.6% MoM and was the main driver of the decline, but it was offset by electricity prices up 1.5% MoM, and natural gas prices up 3.5% MoM. Energy inflation remains elevated at 32.9% YoY with upward pressure likely to come as winter begins.

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The troubling print in the August inflation report is the 0.6% MoM increase in core CPI which has the index up 6.3% YoY (above July’s 5.9% YoY). Within core CPI, the index for household furnishings and operations continued to rise, increasing 1.0% in August after rising 0.6% in Jul. While used vehicle prices fell -0.1% MoM, new vehicle prices were up 0.8% MoM to 10.1% YoY. Some other categories with robust monthly growth were personal care (+0.6% MoM) and education (+0.5% MoM). Despite increases in these categories, home and rent increases remain the main force behind higher core inflation. The shelter index rose 6.2% YoY, accounting for about 40% of the total increase in all items less food and energy. The Fed will undoubtedly see this as a hotter-than-expected inflation report and will look to be hawkish in its September meeting.

This is an excerpt from today's Econ Mornings newsletter.
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