U.S. CPI infaltion gives FOMC members confidence

The U.S. July CPI inflation rose for the fifth consecutive month as the drag from last year's energy price declines continued to fade and as core prices rose moderately. Headline CPI increased by 0.1% m/m in seasonally adjusted terms, just below our forecast (0.2%) and consensus expectations (0.2%). Core CPI also rose by less than expected. Energy prices increased by 0.1% m/m, and food prices rose a modest 0.2% on the month. On a y/y basis, total CPI rose 0.2% and core CPI rose to 1.8%.

ngoing increases in CPI inflation should give members of the FOMC confidence that underlying inflation trends are positive, as the trends will also boost headline PCE, their preferred measure of inflation. These recent improvements should outweigh risks to the forecasts, driven by the renewed decline in commodity prices and the recent surge in the value of the dollar, says Barclays. July PCE inflation is expected to receive on August 28.