Gas prices drove inflation acceleration in August

Sept. 13:

The market has been waiting all week for the August Consumer Price Index and did a double take when it was released this morning. The 0.3% increase in core CPI, which excludes food and energy prices, was the first acceleration in monthly price growth since February. 

But the year-over-year increase in core CPI dropped from 4.7% to 4.3%, which could give some comfort to the Federal Reserve. August’s core CPI increase was largely due to a 2.0% increase in prices of transportation services.

The overall inflation rate jumped 0.6% in August, driven largely by a 10.6% increase in the price of gasoline. The annual inflation rate rose to 3.7% from 3.2% the prior month.

State of the market

The inflation numbers were more or less in line with expectations. Treasury yields briefly jumped up but quickly retreated. The futures market is still predicting the Federal Open Market Committee won’t take any action at its meeting next week, and the chance of a tightening at the Nov. 1 FOMC meeting is about 45%.

The Dow traded up this morning.

Economic calendar

Thursday, Sept. 14

• Producer Price Index
• Advance Retail Sales
• Business Inventories
• Weekly Initial Jobless Claims

Friday, Sept. 15

• Import Price Index
• Empire State Manufacturing Survey
• Industrial Production/Capacity Utilization
• University of Michigan Consumer Sentiment

Treasury calendar

Tuesday, Sept. 12

• Yesterday’s $35 billion auction of 10-year Treasury notes resulted in a yield of 4.289%, with demand lower than at the last such auction.

Wednesday, Sept. 13

• $20 billion auction of 30-year Treasury bonds

By Mike Kraft, Executive Director and Commercial Real Estate Treasurer for Commercial Banking