U.S. Core CPI Runs Hot, Rate-Hike Expectations Grow: Is the Fed Now Backing Up Its Words?
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In the August U.S. consumer price index, the core index, which excludes volatile energy and food, rose 0.3% from the previous month, exceeding the market forecast of 0.2%. Stephen Brown, chief economist at Capital Economics, noted that the unexpectedly strong core CPI has raised the likelihood that the Federal Reserve will move ahead with a rate hike at next week's Federal Open Market Committee meeting. The main drivers of the increase were a 0.4% month-on-month rise in used car prices and a 0.3% rise in new car prices, while core services prices rose 0.3%, though he said the picture is not as bad as it looks, since the gains came from airfares, higher education costs tied to the new school term, and what appears to be a one-off increase in mobile phone charges. Based on the August CPI data, the core PCE price index for the same month, which the Fed watches closely as an inflation gauge, is expected to rise 0.27% from the previous month and 3.4% from a year earlier, accelerating from the 3.3% increase in July. Brown said the core PCE price index is moving in the wrong direction, and that this could be enough to push Fed Governor Christopher Waller and other centrist FOMC voting members, who are willing to shift their stance flexibly depending on economic data, toward supporting a rate hike at next week's meeting.
