Oscar Munoz, macro strategist at TD Securities, points out that the details from August PPI and CPI data suggest that the US core inflation likely inched up 0.2% m/m, lifting the annual measure from 1.6% to 1.8% y/y to its highest level since December.
Key Quotes
“Headline inflation should have only ticked up 0.1% m/m (1.5% y/y) as food and energy prices remain a headwind.”
“The pickup in core inflation momentum is also reflected in our 3m annualized projection for August, which should increase at its fastest pace since 2012. Given favorable base effects in August-October and current momentum in underlying prices, core PCE inflation could get to the vicinity of 2% by Q4.”
“The gain in August core prices partly reflects the continued normalization of transitory factors that weighed on prices in Q1. In particular, apparel prices have been on a rapid uptrend since their May lows and airfares continue to ramp up.”
“Despite approaching the 2% target, we expect the Fed to remain focused on risks to the growth outlook in the near-term. In fact, we judge the Powell FOMC to be more willing to temporarily overshoot 2% as it seeks to ensure the asymmetry of the inflation target.”
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