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U.S. Core Inflation Unexpectedly Cools on Apparel, Medical Costs

Published 2018-09-13, 08:30 a/m
Updated 2018-09-13, 09:11 a/m
© Reuters.  U.S. Core Inflation Unexpectedly Cools on Apparel, Medical Costs

© Reuters. U.S. Core Inflation Unexpectedly Cools on Apparel, Medical Costs

(Bloomberg) -- A gauge of underlying U.S. inflation unexpectedly cooled in August as apparel prices fell by the most in about seven decades and medical-care costs declined, offering Americans a respite from accelerating price gains.

Excluding volatile food and energy costs, the core consumer price index rose 2.2 percent in August from a year earlier, compared with the 2.4 percent median estimate of economists surveyed by Bloomberg News, a Labor Department report showed Thursday. The broader CPI slowed to a 2.7 percent annual gain from 2.9 percent.

The cooling of price gains, along with what last week’s jobs report showed was the fastest wage increase since 2009, meant inflation-adjusted hourly pay rose 0.2 percent from a year earlier, following a 0.1 percent decline in August.

The moderation in the core gauge partly reflects a 1.6 percent monthly drop in apparel prices, a component that tends to be volatile. Even so, the broader slowdown follows data showing a surprise drop in producer prices and suggests the path of inflation could be softer than expected. At the same time, freight prices and rising wages, along with tariffs and counter- levies, may keep putting upward pressure on inflation.

Federal Reserve policy makers are widely expected to raise interest rates later this month, though a more persistent slowdown in inflation could affect their outlook for future increases.

Monthly Change

The core CPI rose 0.1 percent from the prior month, compared with the median estimate of economists for a 0.2 percent gain, and followed an annual increase of 2.4 percent in July. The broader CPI was up 0.2 percent, less than forecasts for a 0.3 percent increase. It was expected to rise 2.8 percent from a year earlier.

Besides apparel, the index for medical care fell 0.2 percent for a second month. The shelter category, which accounts for about one-third of the CPI, showed a 0.3 percent gain, in line with recent increases. Prices of new automobiles were unchanged, the first month without a gain since April, while used cars and trucks rose 0.4 percent.

Airfares rose 2.4 percent following a 2.7 percent advance in July, amid higher fuel prices, one of the biggest costs for airlines.

The Fed’s preferred gauge of inflation -- a separate consumption-based figure from the Commerce Department -- came in above the central bank’s 2 percent goal in July, and the figure tends to run slightly below the Labor Department’s CPI. August numbers are due on Sept. 28, after the Fed’s two-day meeting.

Seasonally adjusted gasoline prices increased 3 percent in August from the prior month, the most since April, and were up 20.3 percent over the past 12 months.

Other Details

  • The increase in the core CPI brought the three-month annualized gain to 1.96 percent, after 2.33 percent
  • Energy prices rose 1.9 percent from previous month; food costs advanced 0.1 percent
  • The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents

©2018 Bloomberg L.P.

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