Market pricing for a 25 basis point hike at the September 16th FOMC meeting was practically solidified following the latest August inflation reports (Figure 3), against the backdrop of a relatively resilient U.S. economy. First, PPI rose 0.4% MoM—the largest monthly gain since May—and 5.4% YoY, a beat versus the 5.3% expected and a sharp acceleration from July’s 4.8%. The headline was driven almost entirely by a 4.2% surge in energy prices, with food prices contributing a modest 0.1% (per Bloomberg). Core PPI, stripping out food and energy, came in at 0.2% MoM—a miss versus the 0.3% consensus. However, markets largely looked past the soft core print: jumps in airfares and hospital services within the PPI details, combined with upward revisions to July’s level, neutralized the headline beat and kept the hawkish read intact.
Then, the CPI headline matched expectations at 0.4% MoM and 3.4% YoY, unchanged from July. Per Bloomberg, more than a third of the monthly gain came from a 3.9% rebound in gasoline prices, with food up a modest 0.1%. The surprise was in core CPI, which rose 0.3% MoM against a consensus of 0.2%. On a YoY basis, core CPI came in at 2.4%, the slowest since March 2021, but the monthly acceleration was what moved markets. Digging deeper into core CPI components, shelter was a key driver, rising 0.3%—its largest monthly gain in three months—reversing two months of subdued readings and owners’ equivalent rent also picked up. Beyond shelter, wireless phone services jumped notably, also contributing to the core beat.
