US CPI steady in August but underlying inflation remains sticky

The US consumer prices increased 0.2% month on month in August, unchanged from July and in line with expectations.
Annualized CPI advanced 2.5%, marking the smallest rise since February 2021 and fell below July figure which showed increase by 2.9%.

Year on year inflation also met expectations.

On the other hand, core inflation, stripped for the volatile food and energy components, rose 0.3% in August month on month after rising 0.2% previous month and reducing possibility for potential Fed’s decision for 50 basis points rate cut in the policy meeting next week.

Inflation in the US is still above Fed’s 2% target but remains in a steady downward trajectory which keeps the door open for rate cuts and also gives more space to the central bank to shift focus on the labor market – another pillar on which the economy seats.

Labor data for August, released last week showed that employment increased below expectations, but negative impact was partially offset by unexpected drop in unemployment, which also contributed to factors which cool expectations for more aggressive action by the US central bank.

The latest polls showed that expectations for 50 basis points rate cut continue to decline, fueling bets for widely expected decision of 25 basis points cut, which will signal the start of policy easing cycle after the US central bank kept its interest rate at 5.25%/5.50% peak for one year.