September 13, 2022 | 09:04
U.S. Inflation: Persistence Rules
Underlying inflation pressures remained intense in the August CPI report, virtually guaranteeing another outsized rate hike from the Fed next week. Although the headline index rose only 0.1%, this was more than the market expected, and was largely held back by another hefty slide in gasoline prices (and airfares continuing to lose altitude). Apart from that, most other categories flashed heat, including another chunky gain in food costs, which are up 11.4% in the past year. Core prices jumped 0.6%, twice market expectations and slightly more than the already-high par for the year. Rents keep chugging higher, up 0.7%, with shelter costs now up a lofty 6.2% in the past year. New vehicle prices keep motoring, as well, along with the cost of fixing older cars and insuring them. Hefty increases were also noted in home furnishings and operations, medical care services, and tuition. Meantime, used vehicle prices continued to reverse course, but just slightly.
Headline inflation pulled back to 8.3%, but the core rate leaped four-tenths to 6.3%, putting it within easy distance of March's four-decade peak of 6.5%. The shorter term annualized rates are all near 6 1/2%, suggesting base effects aren't an issue. Plain and simple, underlying inflation forces remain brisk given tight labour and rental markets; and not helped by some tentative signs of a pickup in economic activity this summer.
Bottom Line: The Fed is all but sure to hike rates aggressively next week, likely by 75 bps, while pushing back strongly against talk of a near-term pause in the tightening cycle.