US Core Consumer Prices Defy Expectations With August Surge

The US core consumer prices experienced an unexpected uptick in August, primarily driven by a significant increase in housing costs. The core consumer price index, which excludes food and energy costs, rose 0.3% from July and 3.2% from the previous year, according to data released by the US Bureau of Labor Statistics on Wednesday.

The overall inflation rate also increased by 0.2% from the previous month and 2.5% from August last year, partly offset by lower gasoline prices.

Economists tracked by Bloomberg had anticipated a 0.2% increase in both the consumer price index and the core gauge for August. The latest inflation reading may not change the Fed's plan to cut interest rates next week, but it could limit the scope of the reduction.

Meanwhile, policymakers continue to prioritise the labour market's weakening trend, which is expected to shape their future policy moves. Food prices edged up 0.1%, while energy costs decreased 0.8%. Other notable changes included a 1% drop in used vehicle prices, a 0.1% decline in medical care services, and a 0.3% increase in apparel prices.

Housing-related costs continue to fuel inflation, with the shelter component of CPI rising 0.5% and 5.2% year over year. This increase significantly contributed to the rise in the all-items measure.

The service sector costs rose in August, led by a 0.5% surge in shelter prices—the steepest climb since the start of the year. This marked the second straight month of accelerating growth, defying broad expectations of a deceleration. Meanwhile, owners' equivalent rent, a crucial shelter sub-component and the CPI's largest single contributor, posted a similar expansion.

Policymakers will scrutinise additional data in the run-up to their November and December meetings. This closer inspection of the inflation trajectory reveals a 0.28% increase in core CPI from July, when calculated to two decimal places.