August Consumer Price Shows Inflation May Be Abating

CPI Number Below Economists’ Target

The prices on a variety of consumer products increased less than expected in August, providing the first sign that inflation could be cooling down. The Consumer Price Index, which tracks a basket of products commonly used by consumers, rose 5.3% year-over-year in August and is up 0.3% from July. Economists had forecast the CPI to increase 5.4% in August.

The slower-than-expected increase in consumer prices is the first sign inflation may be slowing. The Federal Reserve has been saying the uptick in inflation would be temporary. The bank’s leadership has pointed to pent-up demand, stimulus checks, and supply-chain issues as reasons for the spike. The Fed is closely monitoring inflation data as it works to determine when to ease its emergency bond-buying program.

Energy Prices Drove the Increase

Energy prices drove much of the increase in inflation in August, with gasoline prices up 2.8%. Food prices increased 0.4%. Energy prices are 25% higher than a year ago while gasoline is up 42%. Excluding food and energy prices, which tend to be more volatile, the Consumer Price Index increased 0.1% month-over-month, and 4% from a year ago. It marks the slowest pace of inflation price increases since February.

Used car and truck prices fell for the first time in several months, declining 1.5% in August. Used car and truck prices are still 31.9% higher on a year-over-year basis. New car prices increased 1.2%.

Treasury Yields Move Lower

August’s CPI results sent US Treasury yields lower Tuesday, with the yield on the 10-year Treasury note falling 3.7 basis points to 1.287% at midday. Meanwhile the 30-year Treasury bond yield slipped 4.2 basis points to 1.862%. The 10-year Treasury note is the benchmark used to set borrowing costs for mortgages and corporate debt. Some investors have been concerned that rising inflation would prompt the Fed to raise interest rates at a faster pace, which would hurt the value of bonds already in the market. The CPI result relieves some of those fears.

Investors concerned about inflation were hopeful after yesterday’s CPI numbers were released, though stocks fell after an initial bump. It will be interesting to see if inflation continues to cool off.

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