The U.S. headline inflation eased slightly in August, as CPI prices rose modestly by 0.1 percent sequentially. On a year-on-year basis, inflation eased to 1.7 percent. Core rate came in at 0.3 percent for the third consecutive month. On a year-on-year basis, the core rate came in at 2.4 percent in August.
Increases in the indexes for medical care, shelter, recreation, used cars and trucks, airline fares and personal care all added to the stronger core reading. Rising costs for medical care, and more specifically hospital services and over the counter drugs were behind the acceleration in medical care costs.
New vehicles continue to see a fall in prices, down 0.1 percent sequentially. It rose 0.2 percent year-on-year. It’s costing less to fill those new cars with gas too. Gasoline prices dropped 3.5 percent sequentially and 7.4 percent year-on-year.
Inflation in both core services and goods continued to strengthen. Core goods prices were up 0.2 percent sequentially and 0.8 percent year-on-year. This category was in deflationary territory for most of the 2013-2018 period, but the effect of tariffs on many imported goods is likely increasingly being passed on to consumers. Core services inflation came in at 2.9 percent in August.
“The Fed's preferred core inflation measure, core PCE, inflation is typically a few ticks lower than CPI, so it is likely to still be close to the Fed's 2 percent target”, stated TD Economics in a research report.