Consumer Prices Rose 0.4% in August

Andrew Cummings
September 13, 2020

Excluding volatile food and fuel costs, the so-called core CPI - viewed by policy makers as a more reliable gauge of price trends - also increased 0.4 per cent from the prior month after a 0.6 per cent jump in July that was the largest in nearly three decades.

The Labour Department's consumer price index fell into the negative for three months starting in March as the coronavirus pandemic slammed the global economy, causing a huge drop in crude prices amid oversupply concerns as well as sharp pullbacks in consumer spending in some areas. New vehicle prices were unchanged in August but analysts predict prices are likely to rise in coming months, reflecting supply shortages.

Because of that change, many officials believe the Fed will leave its benchmark interest rate, which influences many consumer and business loans, at a record low near zero at its meeting next week and for the foreseeable future as it tries to boost the country out of a recession which has cost millions of jobs. That was a tad higher than what economists had forecast, and it marked the third straight month of price gains.

However, the prices of housing, water, electricity, gas, and other fuels fell by 0.42 per cent; communication by 0.02 per cent; miscellaneous goods and services by 1 per cent; and restaurants and hotels by 0.32 per cent in August 2020 compared to the same month of 2019. The CPI climbed 0.4% from the prior month following a 0.6% advance.

"We expect inflation will struggle to meet the Fed's 2.0 per cent target over the next two years, let alone run higher for a time in order to bring inflation to 2.0 per cent on average". A 5.4 per cent surge in the cost of used cars and trucks accounted for more than 40 per cent of the gain in the core index.

Both benchmarks were down about 5% for the week.

United States stocks rose on Friday, after a pullback in the previous session. Motor vehicle production closed completely during the spring as the pandemic shut down wide swaths of the economy. Still, the three main US stock indexes were headed for a second straight weekly decline as recent economic indicators suggested a long and hard recovery from the pandemic.

Increasing stockpiles are likely to be a subject at a meeting on September 17 of the market monitoring panel of the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russian Federation.

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