US: Hot summer for core inflation but unlikely to dissuade the FOMC – Wells Fargo

Data released today showed the CPI core index rose 0.3% during August. Analysts at Wells Fargo point out that despite running in line with the Federal Reserve's target, the pickup in core inflation is unlikely to dissuade the FOMC from easing next week. 

Key Quotes: 

“Lower energy and grocery store prices led to a tepid 0.1% rise in CPI prices, but core inflation came in hot again in August. Prices excluding food and energy rose 0.3% for a third consecutive month, pushing the three-month annualized pace of core inflation to a 13-year high of 3.4% and 2.4% over the past 12 months.”

“The disinflationary impulse coming from core goods deflation has ended. Core goods prices increased again in August and are up 0.8% over the past year— the largest one-year gain since 2012.”

“Today’s report shows inflation running in line with the Fed’s target. Inflation as measured by the core CPI deflator tends to run 0.2-0.3 points higher than the core PCE. This is unlikely to reverse the Fed’s recent easing bias, however.”

“We believe the Fed is more concerned about the trade war’s impact on the economy’s growth prospects, and therefore the outlook to inflation further down the road.”

“For a Fed already implicitly shifting toward an “average inflation” target regime, the recent pickup to a rate essentially at its target may still prove insufficient.”