USA inflation rises ahead of Federal Reserve meeting next week

For a Fed attempting to convince itself that the recent deceleration in core inflation is temporary, a stable print of 1.7 percent in August is not encouraging, stated Nordea Bank.

Food prices grew 0.1% over the month, while shelter prices, a measure of rent and mortgage payments, increased 0.5%.

"It's a precursor for what I think we're going to see in September", said Tom Simons, chief money market economist at Jefferies.

Jakobsen suggests that core inflation may fall again before the year is out owing to "base effects" of price changes that took place last year but that it should pick up meaningfully once into 2018.

Core prices have risen a modest 1.7% over the past year but since June have climbed at an annual rate of 1.9%.

Much of the gain owed to a sharp rise in gasoline prices caused by Hurricane Harvey, which temporarily shut Texas refineries.

The rise was driven by a 2.8 percent month sharp rise in energy prices that came after the Hurricane Harvey that hampered almost 20 percent of USA refining capacity. In the past three months, the core inflation is up at an annual rate of 1.9 percent (Jun-Aug), illustrating that momentum had rebounded significantly since May, when the three-month rate of change roughed at 0 percent. The Fed has targeted a 2 percent inflation rate, and some Fed officials have said the lower inflation appears transitory.

Wall Street edged up to a record high on Wednesday as gains in consumer discretionary and energy stocks offset losses in technology heavyweight Apple (O:), which fell on concerns of its new iPhone X. But gasoline prices have already stabilized and are expected to start falling, particularly with reduced demand from Florida, where many homes and businesses are still without power due to Irma.

In addition to high gasoline prices, inflation in August also was lifted by a 0.4 percent increase in the cost of rental accommodation.

Steve Stanley, chief economist at Amherst Pierpont, said inflation data would have to be soft over the next few months "to talk them out of a rate hike". Producer price data showed a 9 percent jump in gas prices for August, but that does not always cross over into CPI data. Core CPI, without gasoline and food, rose 0.2 percent.

The weaker-than-expected wholesale inflation data failed to dent rate-hike expectations, as US treasury yields added to gains, lifting demand for the greenback.

Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its September 19-20 policy meeting.

The Fed meets Tuesday and Wednesday, and it is expected to hold off on an interest rate hike but begin the process of shrinking its balance sheet. Prices for lumber, for example, could rise temporarily as communities fix damage from the storm. "This could definitely persist", said Swonk. A US tariff on Canadian lumber has already increased the cost of wood by an estimated $1,700 per home, she said.

Another area that could continue to show a decline is wireless services, expected to decline by about 0.2 percent.

"This is with some Harvey, but there's no reason to expect it to go away. It's been a continued drag", Swonk said, adding that wireless telephone services prices are down about 13 percent in CPI as carriers offer restructured data plans.

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