U.S. headline inflation rises slightly below expectations in August, inflationary pressures to pick up in quarters ahead

U.S. headline inflation came in a bit below expectations. The consumer price inflation rose 0.2 percent sequentially in August, as compared with consensus expectations of 0.3 percent rise. Core inflation, which excludes food and energy, rose 0.1 percent, slightly below consensus expectations of 0.2 percent. On a year-on-year basis, the headline inflation slowed to 2.7 percent, while the core inflation decelerated to 2.2 percent.

Sequentially, energy prices were up 1.9 percent sequentially, rebounding from two months of declines. Food prices rose modestly by 0.1 percent. Core goods prices dropped again into the negative territory, down 0.3 percent on the month. After heating up in July, core services prices eased to 0.2 percent. Nevertheless, main services categories remained hot, noted TD Economics in a research report.

Owners’ equivalent rent were up 0.3 percent in August and is up 3.3 percent year-on-year. Rent prices rose 0.4 percent sequentially and 3.6 percent year-on-year. Medical care services, communication and recreation and personal care leaned against these price rises.

The inflation report for August indicates that while inflation has rebounded over the course of 2018, there are few signs of a breakout in price pressures. A solid U.S. dollar and a competitive retail sector are evidently helping to keep a lid on core goods prices. Overall, services price pressures are hotter, but haven’t really broken above a 3 percent rate since the spring.

In all, inflationary pressures are expected to pick up slightly in the quarters ahead, noted TD Economics. A strong US dollar is helping to limit price pressures for several imported goods.

“This backdrop supports our expectation for a continued gradual pace of rate increases, with hikes looking likely at the September and December meetings”, added TD Economics.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -76.458. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex