August core inflation, excluding food and energy, rose 0.3%, hotter than expected

Inflation posted its biggest monthly increase this year in August as consumers faced higher prices on energy and a variety of other items. The consumer price index, which measures costs across a broad array of goods and services, rose a seasonally adjusted 0.6% for the month, and was up 3.7% from a year ago, the U.S. Department of Labor reported Wednesday. Economists surveyed by Dow Jones were looking for respective increases of 0.6% and 3.6%. The two numbers were up 0.2% and 3.2% in July. However, excluding volatile food and energy, the core CPI increased 0.3% and 4.3%, respectively, against estimates for 0.2% and 4.3%. Federal Reserve officials focus more on core as it provides a better indication of where inflation is heading over the long term. Core was up 0.2% and 4.7% in July. Energy prices fed much of gain, rising 5.6% on the month, an increase that included a 10.6% surge in gasoline. Food prices rose 0.2% while shelter costs, which make up about one-third of the CPI weighting, climbed 0.3%. Within shelter, the rent of primary residence index rose 0.5% and increased 7.8% from a year ago. Owners equivalent rent, a key measure that gauges what homeowners believe they could get in rent, increased 0.4% and 7.3%, respectively. Elsewhere in the report, airfares jumped 4.9% but were still down 13.3% from a year ago. Used vehicle prices, an important contributor to inflation during its rise in 2021 and 2022, declined 1.2% and are down 6.6% year over year. Transportation services rose 2% on the month. Excluding shelter from CPI would have resulted in an annual increase of only about 1%, according to Lisa Sturtevant, chief economist at Bright MLS. “Housing continues to contribute an outsized share to the inflation measures,” Sturtevant said. “Rent growth has slowed considerably and median rents nationally fell year-over-year in August. … However, it takes months for those aggregate rent trends to show up in the CPI measures, which the Fed must take into account when it takes its ‘data driven’ approach to deciding on interest rate policy at their meeting … later this month.” Stock market futures initially fell following the report then rebounded. Treasury yields were higher across the board. The jump in headline inflation hit worker paychecks. Real average hourly earnings declined 0.5% for the month, though they were still up 0.5% from a year ago, the Labor Department said in a separate release. The data comes as Federal Reserve officials are looking to stake out a longer-term approach to solving the inflation problem. In a series of increases that began in March 2022, the central bank has boosted its benchmark borrowing rate by 5.25 percentage points in an effort to tackle inflation that had been running at a more than 40-year high in the summer of 2022. Recent remarks from officials have indicated a more cautious approach ahead. Whereas policymakers had preferred to overdo monetary policy tightening, they now see risks more evenly balanced and appear more cautious about future hikes. “Overall, there is nothing here to change the Fed’s plans to hold interest rates unchanged at next week’s [Federal Open Market Committee] meeting,” wrote Andrew Hunter, deputy chief U.S. economist at Capital Economics. Markets largely expect the Fed to skip a hike at next week’s meeting. Futures pricing has been volatile beyond that, with traders putting about a 40% probability of a final increase in November, according to CME Group data.