U.S. core inflation likely to have weakened again in August

The U.S. core inflation is expected to have come in weak again in August. In the previous month, the headline CPI came in flat, consistent with expectations, whereas the core inflation was at 0.1 percent. Airfares had dropped sharply in July, falling 5.2 percent, holding back the core rate. Core inflation is expected to rise modestly again in August by 0.135 percent, said Societe Generale in a research note. In the cyclical components, airfares might have dropped again, probably by about 1.2 percent seasonally adjusted.

In the meantime, used cares fell 1 percent in July for the third straight month and might have come in more modestly at 0.3 percent decline in August. Apparel prices are expected to have dropped by 0.1 percent. Meanwhile hotel rates are likely to have rebounded by around 0.7 percent probably.

Within the non-cyclical components, medical care might have eased to a 0.15 percent gain in August; however, there is an upside risk to this component given its outsized strength so far in 2016, added Societe Generale. Education costs might have rebounded by 0.4 percent, whereas recreation is likely to have dropped 0.2 percent.

On the energy front, prices of gasoline are expected to have dropped around 0.4 percent seasonally adjusted, whereas electricity might have increased 0.2 percent. Natural gas costs are anticipated to have climbed 1.2 percent.

“Overall, the energy index could have inched down by 0.1 percent on a SA basis. Food prices could have been flat in the month. Finally, the NSA index may have printed 240.653, little changed from July’s 240.647 reading”, stated Societe Generale.