Housing costs lift US inflation, cap Fed cut expectations
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The news: US inflation showed mixed results in August, with core CPI rising 0.3% from July, the highest in four months, driven by higher shelter and service costs. Core CPI excludes food and energy.
The numbers: On a year-on-year basis, it rose 3.2%. Overall, CPI increased 0.2%, in line with forecasts, advancing 2.5% year-on-year, its smallest rise since early 2021.
While goods prices declined, housing, airfares and services pushed inflation higher.
Treasury yields rose, the S&P 500 dipped, and the dollar pared losses after the data.
The context: The mixed message delivered by the data complicates expectations for the Federal Reserve, lowering the chances of a larger half-point rate cut at its upcoming 18 September meeting.
Economists now expect the Fed to consider a 25 basis point cut, as inflation pressures persist amid a cooling labour market, where job growth has slowed, and unemployment remains stable at 4.2%.
What they said: Reuters quoted Nationwide economist Ben Ayers saying: "The road to normal inflation hit a bump in August as lingering pressures for housing and service costs once again cropped up. This should clinch a smaller, 25 basis points rate cut from the Fed next week as Fed officials remain wary to feed any lingering price momentum for the economy."
The sources: US Bureau of Statistics , Reuters
