U.S core inflation unexpectedly cools

A gauge of underlying U.S. inflation unexpectedly cooled in August as apparel prices fell by the most in about seven decades and medical-care costs declined, offering Americans a respite from accelerating price gains.

Excluding volatile food and energy costs, the core consumer price index rose 2.2 percent in August from a year earlier, compared with the 2.4 percent median estimate of economists surveyed by Bloomberg News, a Labor Department report showed Thursday. The broader CPI slowed to a 2.7 percent annual gain from 2.9 percent.

The cooling of price gains, along with what last week’s jobs report showed was the fastest wage increase since 2009, meant inflation-adjusted hourly pay rose 0.2 percent from a year earlier, following a 0.1 percent decline in August.

The moderation in the core gauge partly reflects a 1.6 percent monthly drop in apparel prices, a component that tends to be volatile. Even so, the broader slowdown follows data showing a surprise drop in producer prices and suggests the path of inflation could be softer than expected. At the same time, freight prices and rising wages, along with tariffs and counter- levies, may keep putting upward pressure on inflation.

Federal Reserve policy makers are widely expected to raise interest rates later this month, though a more persistent slowdown in inflation could affect their outlook for future increases.

The core CPI rose 0.1 percent from the prior month, compared with the median estimate of economists for a 0.2 percent gain, and followed an annual increase of 2.4 percent in July. The broader CPI was up 0.2 percent, less than forecasts for a 0.3 percent increase. It was expected to rise 2.8 percent from a year earlier.

Besides apparel, the index for medical care fell 0.2 percent for a second month. The shelter category, which accounts for about one-third of the CPI, showed a 0.3 percent gain, in line with recent increases. Prices of new automobiles were unchanged, the first month without a gain since April, while used cars and trucks rose 0.4 percent.

Airfares rose 2.4 percent following a 2.7 percent advance in July, amid higher fuel prices, one of the biggest costs for airlines.

The Fed’s preferred gauge of inflation — a separate consumption-based figure from the Commerce Department — came in above the central bank’s 2 percent goal in July, and the figure tends to run slightly below the Labor Department’s CPI. August numbers are due on Sept. 28, after the Fed’s two-day meeting.

Seasonally adjusted gasoline prices increased 3 percent in August from the prior month, the most since April, and were up 20.3 percent over the past 12 months.

Bloomberg

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