Over the past two days, we got the latest read on inflation with the release of the August Consumer Price and Producer Price Indexes. On a core basis (ex-food & energy), both reports showed that inflation came in 0.1% higher than forecast month-over-month. In the CPI, this upside “miss” was primarily due to shelter inflation perking back up last month. As we’ve written about, due to the way it’s measured, shelter is the most lagging component of the CPI. For that reason, many analysts use more real-time measures of rents to forecast where official shelter inflation is likely headed – and those leading measures point lower from here. Stripping out the shelter component, which comprises nearly 40% of the Core CPI basket, shows that on a year-over-year basis, inflation has already fallen below the Fed’s 2% target.
With a consequential Fed meeting looming next week and anticipation for rate cuts running high, this latest data was being watched very closely for anything that might make them hesitate to deliver. The good news is that this small miss on inflation won’t stop them. There has been speculation that they might kick things off with a half point cut instead of just a quarter point, and maybe this data is enough to squash hopes of “going big” at the beginning. But the key point is that it won’t stop them from beginning the process of lowering interest rates, which is critical as they shift their focus away from battling inflation to trying to prevent the labor market from cooling off any more than it has already.
Source: The Daily Shot, Nomura Securities, as of 9/12/24
Source: Yardeni Research, 9/11/24
Carl Noble, CFA
Senior Vice President of Investments
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