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Consumer prices fell -0.1% (month-over-month) in August, in line with market expectations. Core CPI (excluding food and energy) rose 0.1%, also on par with the consensus view.
On a year-over-year basis, overall consumer price inflation came in at 0.2%, the same pace of growth as last month. Core inflation also remained unchanged at 1.8% Y/Y.
Energy prices fell 2.0% on the month. With the seasonally-adjusted price of WTI oil falling by over 16% M/M in both July and August, more declines ahead are likely once the lagged impact is fully incorporated. Meanwhile, food prices rose for a third consecutive month, up 0.2% M/M.
Core goods prices fell 0.1% (M/M) for a fourth consecutive month. Contributing to the decline, used vehicles prices fell -0.4%, an 11th monthly decline amidst robust supply. In contrast to large declines earlier in the year, apparel rose 0.3%.
The price of core services decelerated to +0.1%, its slowest pace since February. Among major price subcomponents, transportation services fell (-0.3%), medical care services was unchanged (+0.0%), and shelter decelerated (+0.2%).
This latest report on inflation confirms the view that consumer price pressures remain subdued and are even diminishing.
Services inflation, which had supported price growth for much of the year, decelerated. While robust domestic activity is leading to some supply-side constraints, other factors are also at play. The decline in transportation services prices suggests that the impact of lower energy prices is flowing to some core price components.
With the medical care component weighing almost twice as much in PCE inflation - the Fed's preferred measure of inflation - than in CPI, the lack of any price growth there means core PCE will continue to underperform the CPI measure. Alongside the impact of the renewed rise in the dollar, core PCE is likely to remain under the Fed's 2.0% target through 2016.
"In time, a tightening labor market leading to stronger wages will feed through to price growth. But with nary a whiff of inflation in sight, we expect the Fed to take a pass on hiking tomorrow", says TD Economics.
