September 14, 2021 | 08:57
U.S. CPI = Critical Piece of Information for the Fed
Global inflation trends are heavily scrutinized these days, with each month and each development lending itself to the "Is it transitory?" question. And the answer, by the way, is "Yes", "No", "Kinda", and "Depends". The latest reading for the U.S. has the added importance as it comes a week before the FOMC meeting, when there is still a small possibility that the official hint of "tapering shall henceforth beginneth in November" could be given. (Our base case scenario is for tapering to begin in December.)
In any event, the August CPI reading gave some wiggle room for policymakers. U.S. consumer prices rose 0.3% in August (just missing expectations), the smallest monthly increase since January and a good step down from the big gains seen earlier this year (the last five months averaged 0.7%). But, compared to a year ago, prices still soared 5.3% which, aside from a couple of stray months, is the highest in three decades.
What is pushing prices higher? Energy (+2%), clothing (+0.4%), recreation (+0.5%), food (+0.4%). Going out for brunch is costing a lot more these days... up 0.4% in the month or 4.7% y/y, the most in over a decade. Almost everything EXCEPT..... wait for it.... cars. Used car prices actually fell 1.5% last month, the first drop since February but still surging 31.9% y/y. Take it while you can; new cars are still missing some components before they can arrive at the dealer lots. Excluding food & energy, core prices managed to keep it to a 0.1% gain, the smallest increase since February. However, core CPI is still up a hefty 4.0% from a year ago.
Is this the end of the big monthly increases? I wouldn't say that, as demand is still strong and could pickup further with wages rising. Note Amazon's announcement today of average wages rising to $18/hr. Businesses can continue to push their higher costs down to their customers. And let's not forget those supply disruptions which are sticking around probably early next year.
Bottom Line: The "is it transitory debate" is far from over but at least, this more moderate gain in consumer prices will give the Fed some breathing room next week. But not for long.