US August CPI undershoots forecasts

The rate of gains in US consumer prices slowed last month, as medical commodities and services prices dipped.

Apparel and commodity prices outside of food and energy also fell.

According to the Bureau of Labor Statistics, headline consumer prices rose at a month-on-month clip of 0.2%, which pushed the annualised rate of gains to 2.7%, which was down from 2.9% in the month before.

Economists had penciled-in a smaller slowdown to 2.8%.

CPI also slowed much more quickly than anticipated, from a year-on-year clip of 2.4% to 2.2% (consensus: 2.4%).

Weighing on core CPI, prices for commodities less food and enrgy declined by 0.3% versus July and those of apparel by 1.6%.

Significantly, the cost of medical commodities and services also dropped and that of new cars was unchanged.

In comments sent to clients, Ian Shepherdson at Pantheon Macroeconomics was at pains to stress that the underlying trend in apparel, medical services and new car prices was pointing higher.

"The dip in the y/y core rate to 2.2% from 2.4% reinforces our view that the immediate inflation threat is limited, now that the run of increases due to adverse base effects from March through July is over," Shepherdson said.

"The Fed is raising rates because it fears that the falling unemployment rate threatens future inflation, not because it is scared of the immediate outlook. The August data, therefore, don’t materially change the outlook for the Fed meeting this month; they’ll hike, and leave in the Dec dot too."