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CPI: Modest Upside Surprise led by Medical Care

September 16, 2016
Bottom Line: Consumer prices are now 1.1% above their year ago level. Core consumer prices rose moderately and are 2.3% above their year ago level. The stronger than expected report was led by price increase in medical care prices. Owners' Equivalent Rent (a major component of CPI that is an estimate of the cost of shelter) and medical services continue to accelerate, now up 3.1% and 5.1% year-over-year, respectively. Overall headline inflationary pressures at the consumer level still remains muted but year-over-year growth for core prices is now near the fastest rate seen in over four years - nothing that will change the Fed's actions next week, but potentially something to watch going forward.

The CPI ROSE by 0.2% in August compared with market expectations for an increase of 0.1%.

Food prices and energy prices were unchanged. Prices for gasoline fell by 0.9% while prices for fuel oil declined by 1.5%, prices for electricity climbed by 0.5%, and prices for natural gas rose by 2.1%. Energy prices are now 9.1% BELOW their year ago level. Overall consumer prices are now 1.1% ABOVE their year ago level; in August 2015, consumer prices were 0.2% ABOVE their year ago level.

The Core CPI ROSE by 0.3%, compared with market expectations for an increase of 0.2%. Prices for commodities excluding food and energy commodities rose by 0.1%. Gains in medical care (+1.1%), tobacco (+0.7%), were offset by declines in used cars & trucks (-0.6%). Prices for services excluding energy services rose 0.3% with moderate increase in medical care services (+0.9%), shelter (+0.3%), and owner's equivalent rent (+0.3%). Core consumer prices are now 2.3% ABOVE their year ago level; in August 2015, consumer prices were 1.8% ABOVE their year ago level.