Pace of US consumer price rises expected to cool in August

US Inflation updates

US consumer prices are expected to have risen at a more moderate pace in August, as policymakers look for signs that inflationary pressures associated with the economic reopening from Covid-19 lockdowns are easing further.

Consensus forecasts compiled by Bloomberg indicate the consumer price index published by the Bureau of Labor Statistics on Tuesday at 8:30am ET is set to rise 5.3 per cent in August from a year ago — just below the roughly 13-year high of 5.4 per cent reported previously.

Month-over-month price gains are also expected to let up again, with an increase of 0.4 per cent pencilled in from July. That is markedly lower than the 0.9 per cent jump reported between May and June and a slight drop-off from the most recent 0.5 per cent rise from June to July.

A similar deceleration is also forecast for “core” CPI, which excludes volatile items such as food and energy. On a year-over-year basis, economists predict a 4.2 per cent increase compared to 4.3 per cent in July. The monthly pace is expected to stabilise at 0.3 per cent.

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Most of the price gains seen so far this year have stemmed from sectors most sensitive to supply bottlenecks and other pandemic-related disruptions. While the pace of inflation is at multiyear highs, last month’s data showed the first substantive signs that the increases are abating — especially for used car and truck prices and travel expenses, which have driven a substantial part of the increase.

Tuesday’s data will be watched closely for any indication of how the inflation outlook has been affected by the more contagious Delta coronavirus variant, which has driven up cases globally and prompted some countries to tighten restrictions again.

Renewed constraints have hit supply chains, and economists are attuned to whether signs of flagging consumer confidence and business activity mean the rebound will be more modest than initially anticipated.

Consumers are braced for higher inflation to continue, with expectations over the short and medium-term now at the highest level since 2013 when the survey was first launched, according to data published by the New York branch of the Federal Reserve on Monday.

Over the next year, consumers anticipate inflation of 5.2 per cent, up 0.3 percentage points from July in the tenth consecutive monthly increase. Over a three-year horizon, they expect gains of 4 per cent.

Policymakers will also be looking for any evidence that inflationary pressures are broadening, with a specific focus on housing costs. Federal Reserve officials are debating when to begin scaling back the $120bn asset purchase programme put in place last year to support financial markets and protect against a more pronounced economic contraction.

The central bank set out two thresholds to meet before withdrawing or “tapering” that support, including “substantial further progress” towards 2 per cent inflation and maximum employment. Officials agree that the first of these goals has already been met.

No taper announcement is expected at the Fed’s upcoming policy meeting next week, especially after August’s lacklustre jobs report. Most of the economists surveyed in the latest poll conducted in partnership with the Financial Times by the Initiative on Global Markets at the University of Chicago Booth School of Business are readying for a move at the bank’s November gathering.

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