CU Economist Responds to Newest CPI Data and What it Likely Means

WASHINGTON–In August the consumer-price index climbed 2.5% from a year earlier, according to new data released by the Labor Department. That’s a decrease from 2.9% in July and marks the fifth consecutive month that inflation has cooled. Core inflation, a measure that excludes volatile food and energy costs, held roughly steady at 3.2%.

Dawit Kebede

"August's Consumer Price Index (CPI) report offers further evidence that inflation is moving toward FOMC’s target,” America's Credit Unions Senior Economist Dawit Kebede said in a statement. “The annualized three-month average for core CPI stands at 2.1%, despite the disproportionately high contribution from shelter, which lags behind actual market prices in reflecting the true cost of housing. This supports the argument that the Federal Reserve may not need to maintain a restrictive monetary policy, especially as the labor market shows signs of weakening, which could jeopardize a soft landing if interest rates stay elevated for too long." 

In its analysis, the Wall Street Journal said the shelter-related inflation will make it more difficult for the Fed to cut interest rates by any more than 25 basis points when it meets later this month. Some analysts have been calling for the Fed to cut rates by 50 basis points. 

Other Data Points

The Journal report noted the new federal CPI data also reveal:

• Cost increases for food slowed in August, while used vehicles and energy were cheaper than a month earlier. 
• An “intensifying selloff” in oil markets suggests prices at the pump will continue to decline in the coming weeks, a “key reversal in pressures that have colored Americans’ views of the U.S. economy.”