CPI: Cooler But Not a Trend-Changer

Bottom Line:  Core CPI came in a touch lower than expected for the second month in a row in August. Public transportation prices, led by a drop in airfares, fell sharply. Vehicle prices, a source of significant upside over much of late 2020 and early 2021, were mixed with used car prices lower but new car prices higher due to continued slow production amid semiconductor shortages. Housing accounts for 40% of total CPI and just over half of Core CPI, with Owner's equivalent rent (OER) dominating the category. And OER was a touch cooler in August at 0.25%.  That said, the trend in OER is still accelerating moderately -- 3.5% annualized in the last 3 months vs. 3.3% and 2.6% in the last 6- and 12-months, respectively. Based on historical time lags, most of the impact from higher single-family home prices won't be felt until early 2022 CPI readings. Overall, while this is good news for the "transitory" story suggesting most of the inflation pressures over the last year would prove one-off, this report does little to change the likely trajectory of Fed policy.  Looking through the volatility of pandemic-related categories, there are plenty of indications that core CPI components will continue to run above the Fed's 2% target.

The CPI ROSE by 0.27% in August, compared with market expectations for an increase of 0.40%.                    

Overall consumer prices are now 5.2% ABOVE their year-ago level; in August 2020, consumer prices were 1.3% ABOVE their year-ago level.
                                   
The Core CPI ROSE by 0.10%, compared with market expectations for an increase of 0.30%.

Core consumer prices are now 4.0% ABOVE their year-ago level; in August 2020, consumer prices were 1.7% ABOVE their year-ago level.