Following yesterday's cooler-than-expected PPI (MoM deflation), expectations for this morning's Consumer Price Inflation were for the further acceleration.

Headline CPI rose 0.4% MoM (hotter than the 0.3% expected, lifting prices up 2.9% YoY - the highest since January...
 

Source: Bloomberg
 

CPI rose 0.4% in August, after rising 0.2% in July; over the last 12 months, the all items index increased 2.9% before seasonal adjustment.

• The index for shelter rose 0.4% in August and was the largest factor in the all items monthly increase. The food index increased 0.5% over the month as the food at home index rose 0.6% and the food away from home index increased 0.3 percent. The index for energy rose 0.7% in August as the index for gasoline increased 1.9% over the month.

• The index for all items less food and energy rose 0.3% in August, as it did in July. Indexes that increased over the month include airline fares, used cars and trucks, apparel, and new vehicles. The indexes for medical care, recreation, and communication were among the few major indexes that decreased in August.

• The all items index rose 2.9% YoY in August, after rising 2.7% in July. The all items less food and energy index rose 3.1 percent over the last 12 months. The energy index increased 0.2 percent for the 12 months ending August. The food index increased 3.2 percent over the last year.

Core Services were the big driver of the increase, not driven by tariff pressures...

Source: Bloomberg
 

Core CPI rose 0.3% MoM as expected, lifting prices more than 3% YoY for the first time since February...
 

Source: Bloomberg
 

Core Services also dominated the rise in core CPI...
 

Source: Bloomberg
 

More details on the core CPI print which rose 0.3% in August, same as July:

• The shelter index increased 0.4% over the month, and was the largest factor in the all items monthly increase

  • The index for owners’ equivalent rent rose 0.4 percent in August and the index for rent increased 0.3 percent.

• The lodging away from home index rose 2.3 percent over the month.

• The index for airline fares increased 5.9 percent over the month, after rising 4.0 percent in July.

• The used cars and trucks index rose 1.0 percent in August and the apparel index rose 0.5 percent.

• The index for new vehicles rose 0.3 percent over the month and the index for household furnishings and operations increased 0.2 percent.

• The recreation index and the communication index both declined 0.1 percent in August.

• The medical care index decreased 0.2 percent over the month, following a 0.7-percent increase in July.

• The index for dental services decreased 0.7 percent in August and the index for prescription drugs declined 0.2 percent.

• The physicians’ services index increased 0.3 percent over the month, while the hospital services index was unchanged.

It looks like auto costs are starting to tick up again. New vehicles rose by 0.3% while used cars and trucks rose by 1.0%. But the real sting was in motor vehicle maintenance and repairs, which jumped by 2.4%. 

When we look at some import-exposed categories:

• Household furnishings are up 0.1% on the month, the least since March, and appliances within that category are up 0.4%, the most since June. A sort of mixed reading there.
• Apparel (clothing) is up 0.5%, the largest gain since February, so, an acceleration there.
• Video and audio products are up 0.5%, which is the smallest rise since May.

At least looking at these categories, there’s no overall broad story of acceleration in inflation pressures. 
 

Interesting, SuperCore CPI slowed in August to 3.52% YoY...
 

Source: Bloomberg
 

Transportation Services were the biggest driver of the rise in SuperCore CPI...
 

Source: Bloomberg
 

Comparing CPI to PPI shows that there is no margin pressure on firms and could suggest price pressures being passed through to end users...
 

Source: Bloomberg
 

Together with August PPI, the CPI report suggests that the Fed’s preferred inflation gauge, the core PCE deflator (due out Sept. 26) will edge up to 3.0% for August year over year...
 

All of this is to say, while the overall inflation numbers are in line with what economists had expected, within the details there are pockets of price pressure. 

We highlighted auto repairs and airline tickets earlier, but take a look at fruit and vegetable costs: up 1.6% on the month. Motor fuel rose by 1.8%, while tobacco costs rose 1.0%, and food-at-home jumped 0.6% on the month, the biggest gain in almost three years. 

To be clear, the overall number won’t hold the Fed from cutting, but it’s clear there’s inflation pressure in some corners of the economy. 

...not enough to scare The Fed from its rate-cutting path.

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