US CPI Review: August 2024

An in-depth analysis of the latest inflation data reveals further disinflationary evidence, with the core CPI ex-shelter recording its slowest pace of 6-month annualised growth since August 2020.

The headline CPI rose 2.5% (2.53%) YoY in August, largely in-line with my estimate of 2.48% (consensus: 2.6%). This represented a marked deceleration from July’s YoY growth rate of 2.9% and the slowest rate of growth since February 2021.

Though for the first time since March, the core CPI saw an increase in YoY growth, rising slightly to 3.20%, from 3.17% in July (vs Economics Uncovered estimate: 3.08%, consensus: 3.2%).

Rather than being driven by concerning underlying shifts, the higher core CPI reading versus the Economics Uncovered forecast was instead largely driven by a blip higher in owners’ equivalent rent (OER). I refer to this as a blip, as the key leading indicator of rent of primary residence (RPR) and OER continues to point to a major deceleration in both measures over the quarters to come (see page 20 of my latest Medium-Term US Inflation Update for further detail). Indeed, as detailed below, both OER and RPR continue to trend lower in spite of August’s MoM uptick in OER.

The impact of OER can be seen in the much tighter spreads between the actual result and the Economics Uncovered estimate, for the core CPI ex-shelter — actual: 1.58% YoY, Economics Uncovered estimate: 1.54%.

The underlying detail of August’s CPI report thus reveals further positive signs, with adjusted core services price growth continuing to disinflate.

Let’s now dig into the monthly and short-term inflation trends, before breaking down the key details across the durables, nondurables and services categories (including an analysis of key and emerging shifts in vehicle, food, shelter and adjusted core services prices) and what it all may mean for the upcoming FOMC meeting.

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