One of the very last economic reports that the Federal Reserve has to review ahead of the decision on interest rates on Thursday is the Consumer Price Index (CPI). This matters big time also, because inflation is what the Fed wants more of to give it cover for raising interest rates. It turns out that they will have to find something else besides inflation for justifying an interest rate hike.
The U.S. Department of Labor released August’s CPI reading as being a drop by 0.1%. Bloomberg was calling for the reading to be flat. Another black eye on the headline CPI was that July’s inflation report was revised to 0.0% from a preliminary 0.1% gain.
The core-CPI, which excludes food and energy, showed a gain of 0.1% on the monthly reading. Bloomberg was looking for a consensus of 0.2% in August. The prior month was revised upward to a gain of 0.2% from 0.1%.
Perhaps the Fed can hang its hat on the annual numbers, comparing the inflation at the consumer level to August of 2014. That annual change was up 0.2% on the headline, but the core-CPI reading was up by 1.8% on an annual basis.
Energy prices were down by 2% in August, which reflected a reading of -4.1% for gasoline. Airfares were down by 3.1%, not including fees at least. Rental inflation had been running hot in prior months, and that was up by only 0.2% in August. One area that heated up a bit was apparel, with a gain of 0.3%, a repeat of the prior report. The food index rose 0.2% in August, led by fruits and vegetables gaining by 1.5%.
Eggs continue to remain pressured due to the bird flu scare. Egg prices were up 7.7% on the monthly reading, but that is actually up 35.3% from a year ago.
Remember that the Federal Reserve really wants the inflation rate at 2.0% to 2.5%.
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