The Consumer Price Index is a measure of the average price level of a fixed basket of goods and services purchased by consumers. Monthly changes in the CPI represent the rate of inflation. Why Investors Care
| Released on 9/16/08 For Aug 2008 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
Highlights
Consumer price inflation in August eased sharply on lower energy costs. The headline CPI declined 0.1 percent, following a 0.8 percent jump the month before. August's decrease matched the market forecast for a 0.1 percent dip. The core rate slowed to a 0.2 percent rise from July's boost of 0.3 percent. The consensus had forecast a 0.2 percent increase.
Pulling the overall CPI down was a monthly drop of 3.1 percent in the energy component, after a 4.0 percent boost the month before. Gasoline dipped 4.2 percent in August. Food inflation also slowed but remained quite elevated with a 0.6 percent increase, following a 0.9 percent surge in July. Higher production costs are still feeding into food production.
The modest easing in the core was led by a 1.1 percent drop in lodging away from home, along with decreases for new vehicles and used cars & trucks, down 0.6 percent and 0.3 percent, respectively. Also, owners' equivalent rent remained low with a 0.1 percent increase - matching July's rise. Apparel slowed but remained high at 0.5 percent, following a 1.2 percent jump the month before. Recreation firmed to 0.5 percent after a 0.4 percent gain in July.
Year-on-year, the overall CPI eased to 5.4 percent (seasonally adjusted) in August from 5.5 percent in July. The core rate was unchanged at 2.5 percent.
The latest inflation news looks good at face value for both headline and core numbers. But the detail shows mixed trends. The decline in energy costs was expected but we may see some reversal from shortages of gasoline and natural gas due to the impact of Hurricane Ike. Elevated energy costs are keeping food inflation high. For core components, economic weakness is pulling some prices down as is a glut of new and used motor vehicles. But import prices are keeping apparel on the high side.
The Fed likely is glad to see today's improvement but despite fragility in the financial markets will likely still be worried about too low interest rates fueling future inflation. The Fed will likely focus on providing adequate liquidity rather than on lowering interest rates. We will see their policy decision at 2:15 p.m. ET.
The consumer price index in July slowed at the headline level from a red hot June pace but still was very strong. The headline CPI posted a 0.8 percent boost in July, following a 1.1 percent spike the month before. As in recent months, energy led the boost in overall inflation with a monthly 4.0 percent rise, following a 6.6 percent increase in June. Food inflation continued to accelerate, rising 0.9 percent in July after a 0.8 percent jump in June. The core rate remained elevated with a 0.3 percent boost, matching June's gain. What's disconcerting is that gains were widespread except for medical care. But we are likely to get at least some temporary relief in August. Gasoline prices have come down and heavy discounting by auto dealers will even likely slow core inflation. Adding to the odds that we should get a more favorable CPI in August was the 3.7 percent drop in import prices for the same month - with consumer goods ex autos flat for the month.
CPI Consensus Forecast for August 08, m/m: -0.1 percent
Range: -0.3 to +0.8 percent
CPI Consensus Forecast for August 08, y/y: +5.4 percent
Range: +5.2 to +5.5 percent
CPI ex food & energy Consensus Forecast for August 08, m/m: +0.2 percent
Range: +0.1 to +0.3 percent
CPI ex food & energy Consensus Forecast for August 08, y/y: +2.6 percent
Range: +2.5 to +2.6 percent
![[Chart]](chart.gif)
|
It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the CPI are mainly volatile because of sharp fluctuations in food and energy prices. The core CPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
|
Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core CPI does not fluctuate as much as the total CPI. |
| 2008 Release Schedule | ||||||||||||||||||||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}