Consumer Prices Modestly Higher in July. Gasoline Prices Surge

Consumer prices rose modestly in August. Higher energy prices pushed the all-items index up 0.4%, as expected, but a decrease in new car prices helped mitigate the monthly advance. The core rate, which excludes volatile energy and food components, also matched forecasts as it inched up 0.1%.

Annually, the all-items index is down 1.5%, while core prices are up 1.4%, six basis points below the Federal Reserve’s preferred rate.

The report is a “clean read” on inflation, as the cash-for-clunkers pricing incentive was captured, said John Herrmann, president of Herrmann Forecasting.

“This CPI report is ‘good news’ for US equity prices, as the report shows stabilizing inflation pressures, and a lessening of disinflation-deflation pressures,” he added.

Led by a 9.1% upswing in gasoline costs, the energy index sprung up 4.6% in the month compared with a 0.1% dip in July. (Those gains are modest compared to yesterday’s producer price index, which saw gas prices surge 23%, leading energy prices up 8.0%.)

Food prices edged up only 0.1% after falling 0.3% in July. “Over the past six months, food prices are down 1.1%, a sharp reversal from the nearly 8% annualized gains experienced last year at this time,” noted Joseph LaVorgna, chief US economist at Deutsche Bank.

New vehicle prices fell 1.3% in the month as dealerships offered sales to go hand in hand with the government’s cash-for-clunkers incentive. The drop follows two months of increases.

Elsewhere in the report, owners' equivalent rent rose 0.1%, pushing the quarterly advance to +0.4%. Medical care went up 0.3%, but the +3.3% annual gain is less than its 10-year average of 4.1%. Apparel prices were 0.1% lower following two months of price hikes. 

Looking ahead, LaVorgna said the modest price advances should continue to shine a green light to the Fed’s monetary policy board. “With unemployment currently 9.7% and headed higher, the relatively benign inflation news makes it more likely the Fed is on hold for an extended period of time.”

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