CPI Tame on Monthly Readings, Annual Core Inflation Meets Fed's Target Range

With the Federal Reserve wanting to raise interest rates, economists and investors keep looking for two things. One is of course a strong economy. Economic readings are positive in general, but they are far from strong. The second is inflation. And we have no real inflation — or do we?

The U.S. Department of Labor released its reading on August’s Consumer Price Index (CPI), and it contained a bit more inflation at the consumer level than the Producer Price Index (PPI) did at the wholesale level.

Friday’s release showed that the headline CPI rose by just 0.2% on the monthly reading from July. Bloomberg was calling for a gain of 0.1% on that reading. Where things look more inflationary is the 1.1% gain when compared to the August 2015 report.

Then there is the core CPI, which is excludes food and energy. That reading rose by 0.3% in August, versus July. Bloomberg’s consensus estimate there was for a gain of 0.2%. Again things look more inflationary in the annual core CPI, with August 2016 up 2.3% from August of 2015.

All in all, this is a somewhat neutral report. It still may give the Federal Reserve enough ammunition to keep jawboning that it wants to raise interest rates, even if the Fed doesn’t vote to act for a formal fed funds rate hike next week.

Issues to consider of late include that gasoline prices have stabilized, but that was after the huge drop in 2015 and the first part of 2016. Transportation costs largely have been soft, as have food prices and the prices of most retail goods. Where we continue to see some strength in prices is in housing and in medical care costs.

Next week is believed to be a live Federal Open Market Committee (FOMC) meeting, meaning discussions about a rate hike (regardless of the election) are ongoing. That being said, fed funds futures are not looking for a rate hike.