Consumer price growth rose in August, the Bureau of Labor Statistics reported Thursday. It's the latest indication that the U.S. economy continues to contend with inflation even as the job market cools.
The broadest measure of price growth increased 0.4% last month after rising 0.2% in July and ahead of estimates of 0.3%. On a 12-month basis, the index climbed by 2.9% compared with 2.7% in July. It’s the highest reading since January.
Excluding food and energy prices, which tend to be more volatile, price growth hit 3.1% on a 12-month basis, the highest figure since February and the third-straight month that this rate has picked up.
Some of the biggest price increases seen between July and August were in prices for used cars and trucks and transportation services, which includes airfare — both up by 1%.
Despite the uptick, analysts say the Federal Reserve remains on track to cut interest rates at its meeting next week. More cuts are likely in the offing assuming the labor market continues to weaken. The U.S. Department of Labor also reported Thursday that weekly jobless claims came in at 263,000 on Thursday, higher than expectations. Last week, the BLS reported the United States added only 22,000 jobs in August.
Wage growth is slowing down, too. From July to August, earnings fell by 0.1% after inflation, the BLS said, suggesting prices are rising faster than earnings, according to new government data.
“We continue to expect the Fed will cut rates next week due to weak labor market data and think it could follow this up with further easing in October,” Simon Dangoor, a strategist at Goldman Sachs Asset Management, said in a note to clients Thursday.
He continued: “Although near-term inflationary pressures remain high, and further strong readings are likely in the coming months as businesses run down inventories and pass on cost rises, the Fed is likely to draw comfort from anchored inflation expectations and the absence of overheating in the labor market, which reduce the risks of second round effects.”
President Donald Trump has insisted that there is “no inflation” and that the Fed should have cut long ago. In a note to clients ahead of Thursday’s release, analysts with Citi financial group said weak consumer demand and “near-zero job growth” has created a “disinflationary” economic backdrop, meaning the rate of inflation is cooling.
On Wednesday, the BLS said wholesale price growth for August came in softer than estimates, as companies ate higher costs. That led some analysts to conclude that inflation might not be as worrisome as feared. The report cemented bets for a rate cut by the Federal Reserve when it meets next week.
Bond investors have also indicated they see a cooling economy, having sent the yield on the 10-year Treasury note to lows not seen since April. The Treasury yield represents the return demanded by investors for lending to the government, and when expectations for inflation are subdued and demand for bonds increases, the yield falls. Mortgage rates have declined, as well.
Stocks, however, keep climbing higher ahead of expectations for a rate cut. Companies’ earnings tend to increase if they do not have to pay as much to borrow money, assuming demand holds steady.
The Dow Jones Industrial Average, the Nasdaq and the S&P 500 all closed at record highs Thursday.
