Fed Welcomes Uptick in Inflation

Fed Welcomes Uptick in Inflation

Fed Welcomes Uptick in Inflation

US consumer prices rose more than expected in August as healthcare costs recorded their biggest gain in 32.5 years, pointing to a steady build-up of inflation that could allow the US Fed to raise interest rates this year.

The cost of living last month was also pushed up by continuing increases in rents.

The uptick in inflation is likely to be welcomed by US Fed officials when they gather next week to deliberate on monetary policy, on 20-21 September, a rate hike is not expected at that meeting.

The US Labor Department said Friday its Consumer Price Index (CPI) increased 0.2% last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1% after advancing 0.8% in the year through July.

The so-called core CPI, which strips out food and energy costs, rose 0.3$ last month, the biggest increase since February, after gaining 0.1% in July.

Economists forecast’d the CPI to be up 0.1% last month and the core CPI gaining 0.2%. The core CPI increased 2.3% in the 12 months through August after rising 2.2% in the year through July.

The USD rallied Vs a basket of currencies on the data, and prices for US Treasuries were mixed.

US stocks traded lower Friday on heavy+ volume

Sentiment also hurt by declining Crude Oil prices and a massive $14-B fine slapped on Deutsche Bank (NYSE:DB) which it informed the US DOJ that it refuses to pay.

 

The US central bank has a 2% inflation target and tracks an inflation measure that has been stuck at 1.6% since March. Fed Governor Lael Brainard said Monday she wanted to see stronger consumer spending data and signs of rising inflation before hiking rates.

Medical care costs jumped 1.0% last month, the largest increase since February 1984, after advancing 0.5% in July. The cost of hospital services jumped 1.7%, the biggest gain since October 2015. Prices for Rx medicine soared 1.3%.

Economists linked the surges to the expansion of healthcare coverage under President Barack Hussein Obama’s Y 2010 healthcare restructuring law dubbed Barack Obamacare. Donald Trump if elected President has vowed to repeal and replace it.

Given the strong increases in healthcare costs, economists are forecasting the Fed’s preferred measure, the core personal consumption expenditures (PCE) index, to rise 0.2% in August after increasing 0.1% in both June and July.

That would take the year-on-year gain to 1.7%, which would be the biggest increase since February.

Last month, owners’ equivalent rent of primary residence rose 0.3% in August. It has risen by the same margin every month since April. Americans also paid more for motor vehicle insurance, apparel and tobacco.

Households got some relief from gasoline prices, which fell 0.9% last month. Food prices were unchanged, with the cost of food consumed at home declining for a 4th month running.

Have a terrific weekend

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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