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Wednesday, September 11, 2019 - 15:09

US DATA PREVIEW: August Core CPI Seen +0.2%, Headline +0.1%


By Brooke Migdon

WASHINGTON (MNI) - U.S. consumer prices are likely to rise more slowly in August due to declines in energy prices while core CPI should notch another modest gain as tariffs start to boost the cost of goods from China.

Headline CPI is expected to fade to a 0.1% increase following a 0.3% gain in July, according to a market median.

Headwinds from oil prices will likely push energy prices down. Gasoline prices, which account for 4% of the CPI basket, declined 3.5% last month, signaling a slow month for energy that may drive down the August CPI headline numbers.

Market expectations call for a more modest rise in core CPI, seen as slowing to a 0.2% gain in August from 0.3% in July.

Major effects of tariffs on U.S. consumer goods imports from China are unlikely to be felt just yet, as President Donald Trump's first round primarily focused on capital goods such as machinery purchased by manufacturers. Although manufacturing and business activity have since shuddered, reflected in a recent contraction of the August ISM Manufacturing PMI, consumer spending in the U.S. has remained strong.

However, tariffs that took effect Sept. 1 and others due on Dec. 15 now target U.S. consumer goods including apparel and electronics. Prices of U.S. consumer goods are likely to increase in the near-term and continue to rise steadily through the end of the year. Recent survey evidence from the Dallas Fed suggests that while manufacturers are more likely to absorb higher prices into their profit margins, retailers are much more likely to pass them onto their customers.

Prices of goods facing tariffs have already increased 3%, according to a Goldman Sachs analysis of Labor Department data published in August.

Additionally, strong wage growth in recent months will likely help support the core CPI number. Average hourly earnings posted a 3.2% year-on-year gain in August.

The forecasted monthly increases in headline and core CPI are expected to leave annual core inflation tracking at 2.3% and headline inflation at 1.7%, still short of the Fed's 2.0% PCE inflation target.

While trade risks from the trade war with China are dominating talks, some Fed officials have also said persistently weak inflation is one reason to consider more stimulus.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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