US consumer prices rose more than expected in August and the annual increase in inflation was the largest in seven months, but the data is not expected to prevent a much-anticipated interest rate cut from the Federal Reserve next week against the backdrop of labour market weakness.
The Consumer Price Index rose 0.4% last month after increasing 0.2% in July, the Labor Department's Bureau of Labor Statistics (BLS) said on Thursday. In the 12 months through August, the CPI advanced 2.9%, the largest increase since January, after climbing 2.7% in July.
Economists polled by Reuters had forecast consumer prices would rise 0.3% and increase 2.9% on a year-over-year basis.
The CPI report could fan concerns of stagflation following recent downbeat news on the labour market. The pass-through from President Donald Trump's sweeping tariffs has been gradual, but prices could accelerate in the months ahead as businesses have now depleted their pre-tariff inventories. Business surveys have for some time been signalling imminent price increases.
"The evidence is overwhelming that more tariff-related inflation is coming, though it may still be several months before it passes through fully," said Stephen Stanley, chief economist at Santander US Capital Markets.
Excluding the volatile food and energy components, the CPI 0.3% after gaining 0.3% in July. In the 12 months through August, the so-called core CPI inflation increased 3.1%. That followed a year-on-year rise of 3.1% in July.
The US central bank, which tracks the Personal Consumption Expenditures (PCE) price indexes for its 2% inflation target, is expected to cut rates at its policy meeting next Wednesday. A quarter-percentage-point reduction has been fully priced in. The Fed paused its easing cycle in January because of uncertainty over the inflationary impact of import duties.
Prior to the CPI data, economists estimated core PCE inflation increased 0.3% in August for a third consecutive month, which would translate to an annual increase of 3.1%. That would be an acceleration from a 2.9% increase in July.
Source: theedgemalaysia