Takeaways from Latest Inflation Data
Takeaways from Latest Inflation Data
The Bureau of Labor Statistics’ August report released today shows inflation heating up:
The Consumer Price Index (CPI) for all items rose 0.4% from July to August, which is the fastest rise since January
Year-over-year, inflation is now 3.1%
Several factors appear to be pushing inflation back up:
Shelter Costs: Rent and owners’ equivalent rent continue to climb, and they make up a big share of consumers’ spending. The shelter index rose 0.4% in August.
Food Costs: Both groceries and restaurant meals are more expensive, which directly hits household budgets.
Tariffs & Trade: Some of the cost pressures from previous tariff policies are now being passed through more fully — inventory adjustments are over, so import duties are starting to show up in consumer-facing prices.
So what does this all mean in terms of outlook?
A rate cut in September is still likely. But a total of 3 cuts this year now seems less plausible, as the Fed will have to keep their eye on inflation and balance that with the labor market
Inflation may persist at elevated levels (i.e. above 2% target) for some time, especially core inflation. Shelter, food, and some goods are likely to keep exerting upward pressure unless supply constraints ease or demand falls
A close eye needs to be kept on the labor market. If job growth slows and/or unemployment rises, this could cool demand and help gradually reduce prices. This would also give the Fed more justification to cut rates at a more aggressive pace. However, if the labor market doesn’t decline or even improves, this could keep pressure on prices and make any rate cuts less likely.
Bottom Line
Inflation isn’t yet out of the woods. August’s data shows it has ticked up again, more than what many hoped given earlier signs of cooling. It’s not runaway inflation, and certainly still much better than a couple years ago; but it’s trending in the direction we don’t want to see. The inflation data that continues to come in throughout the rest of the year will be pivotal in determining the longer-term effects of tariffs, assuming they remain in place.
Ryan Page, CFP®, MBA®
Office & Text:720-826-1092
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