The August CPI Report Seals A September Fed Interest Rate Hike

The consumer price index rose 0.4 percent with core up 0.3 percent. The Fed will hike.

CPI Month-Over-Month

The BLS reports the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in August after rising 0.1 percent in July, the U.S. Bureau of Labor Statistics reported today.

Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.

The BLS rounds to 1 decimal point. I calculate 2 decimal places

CPI Month-Over-Month

• All Items: 0.40 percent

• All Items Excluding Food and Energy: 0.29 percent

• Food and Beverage: 0.12 percent

• Shelter: 0.26 percent

• Owners’ Equivalent Rent: 0.19

• Rent of Primary Residence: 0.17

• Medical Care Services: -0.25 percent

• Medical Care Commodities: -0.23 percent

• Energy: 2.10 percent

• Gasoline: 3.90 percent

• Food at Home: 0.04 percent

• Food Away from Home: 0.25

The only bright spot, assuming you believe it, is medical care services.

CPI Month-Over-Month Energy, Gasoline, Utilities

Month-Over-Month CPI: Energy, Gasoline, Utilities

Energy, Gasoline, Utilities and Fuel Month-Over-Month

• Energy: 2.10 percent

• Gasoline: 3.90 percent

• Utilities and Fuel: 0.06

Looking ahead, Trump’s moves in the strait will cause gasoline prices to jump again in September.

CPI Month-Over-Month Food

August Food

• Food and Beverage: 0.12 percent

• Food at Home: 0.04 percent

• Food Away from Home: 0.25 percent

The BLS weights food at home as 8.23 percent of the CPI. It weights food away from home at 5.29 percent of the CPI.

Actual spending is reversed. Thus, the food and beverage percent is much higher every month than reported.

CPI, Shelter, and PCE Year-Over-Year Percent Change

Year-Over-Year CPI and PCE

• CPI: 3.4 percent

• CPI Shelter: 3.0 percent

• CPI Excluding Food and Energy: 2.4 percent

• PCE: 3.7 Percent (July)

• PCE Excluding Food and Energy: 3.3 Percent (July)

CPI Year-Over-Year Food

CPI Food Year-Over-Year Percent Change

CPI Year-Over-Year Food Details

• Food and Beverage: 2.9 percent

• At Home: 2.7 percent

• Away from Home: 3.4 percent

Because the BLS underweights food at home and does not include tips at all, food and beverage at 2.9 percent is hugely understated.

Food is 13.52 percent of the CPI

CPI Core Services vs PCE Less Food and Energy

Year-Over-Year CPI Core Services and PCE Less Food and Energy

• CPI Core Services: 3.02 percent

• PCE Less Food and Energy (July): 3.34 percent

I fail to see how anyone can get a rate cut or even a rate hold out of that chart.

The Fed’s preferred measure of inflation is PCE less food and energy. The Fed is also concerned about core services.

The Fed has missed inflation targets for 62 straight months on PCE and 65 straight months on the CPI.

CPI and PCE Are Understated

1. Neither measure counts property taxes, homeowner’s insurance, or home prices.

2. Food is understated because of improper weights.

3. Medical insurance costs are more than a bit suspect.

Yet, economists wonder why people are more upset about inflation than what the numbers show.

Fed Rate Hike Coming

A rate hike in September is all but certain after this report.

For discussion, please see Hello Nay Sayers, the Fed Hikes Interest Rates in 5 Days, Odds 85 Percent

A rate hike is now a done deal, as expected in this corner.