Hatzius' Take On CPI: "Very Soft Outside Energy"
Core inflation kept flat thanks to....tobacco prices? Aside from that, deflation rules. The only question is: does Bernanke take secret smoke breaks inbetween think tank sessions on how to destroy the US middle class quickly and clinically.
CPI +0.254% in Aug (mom, +1.1% yoy) vs. GS +0.17%, median forecast +0.3%.
Ex food and energy +0.046% in Aug (mom, +0.9% yoy) vs. GS +0.10%, median forecast +0.1%.
1. Consumer prices rose 0.3% in August, largely on energy costs. Gasoline prices rose 3.9% on a seasonally adjusted basis (on an unadjusted basis, they barely increased, but they normally decline in August), contributing about 2/3 of the headline CPI gain.
2. Core inflation was just low enough to round to zero on the month. Shelter costs were a key item keeping inflation down: residential rents fell 0.1%, lodging away from home was down 1.3%, and owners' equivalent rent was flat. In prior research we have found shelter costs to be one of the most persistent categories of inflation, so today's readings suggest continued low core inflation in the near future. (Tobacco prices, which are much more volatile but have seen large gains in recent months in part because of higher taxes, rose a more modest 0.4%.)
3. On the surface, the composition of price changes suggests a slightly higher core PCE inflation reading, as rent/OER receive a lower weight and medical care (+0.2%) receives a higher weight in the PCE price index.