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US core consumer prices slowed sharply in August

WASHINGTON, Sept 13 (Reuters) – Underlying US consumer prices rose the slowest they had in six months in August, suggesting that inflation was likely to peak, though it could stay high for a while, given continued supply constraints .

The Labor Department announced Tuesday that its consumer price index, excluding the volatile food and energy components, rose 0.1% over the past month. That was the smallest increase since February and followed a 0.3% increase in July. The so-called core CPI rose 4.0% y / y after rising 4.3% in July.

Headline CPI rose 0.3% last month after rising 0.5% in July. In the twelve months to August, the CPI rose 5.3% after rising 5.4% yoy in July.

Economists polled by Reuters had forecast the core CPI to rise 0.3% and the headline CPI 0.4%.

Inflation heated up earlier in the year, driven by rising prices for used cars and trucks, as well as for services in industries hardest hit by the COVID-19 pandemic.

There are signs that the price hike for used cars and trucks has started. Hotel and motel accommodation prices are now above pre-pandemic levels, suggesting moderate increases. The slowdown in monthly inflation rates is in line with Federal Reserve Chairman Jerome Powell’s longstanding belief that high inflation is temporary.

But bottlenecks in the supply chain persist and the labor market is becoming tense, which is driving up wages.

Housing shortages are driving record hikes in house prices and rising rents as vaccinations allow companies to recall workers to offices and draw Americans back to cities after a pandemic-fueled exodus to sparse areas. These factors could help keep annual inflation higher.

“If there is a connection between the real world and government data, we could incorporate the huge increases in house prices and rents into the CPI,” said David Donabedian, chief investment officer of CIBC Private Wealth US in Baltimore.

The government reported last week that producer prices rose solidly in August, with the PPI recording its largest annual increase in nearly 11 years.

The CPI report comes as speculation in financial markets mounts as to when the Fed will announce that it will scale back its massive monthly bond buying program. Powell has given no signal when the US Federal Reserve plans to cut its bond purchases other than saying it could be “this year.”

The Fed’s preferred measure of inflation for its flexible 2% target, the core consumer spending index, rose 3.6% in the twelve months to July after a similar increase in June. The data for August will be released later this month.

“The recent rise in wage pressures across all sectors could lead to broader increases in service prices,” said Veronica Clark, an economist with Citigroup in New York.

“The sharp rise in the ‘temporary’ price components in recent months will increase the annual rate of inflation for some time, which means that it will be more important to assess the details of the inflation data in order to assess the persistence of inflationary pressures.” Lucia Mutikani, editor of Chizu Nomiyama)

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