Today’s release of CPI really didn’t contain much good news. Inflation at the consumer level rose in August with the index rising another 0.4% for the month following a 0.5% increase in July.
Inside the index we see that the areas that affect the consumer directly such as food, gas and energy, continue to mount even as year over year incomes, according to the latest census bureau data, decline. Energy continued rose 1.2 percent after jumping 2.8 percent in July, Gasoline pushed 1.9 percent higher after a 4.7 percent surge in July and food prices accelerated another 0.5 percent after rising 0.4 percent the previously.
Furthermore, even when you look inside the core, the index less food and energy, you find that shelter rose 0.2 percent and apparel, due primarily to rising import and commodity prices, lept 1.1 percent. In fact, most of the core’s major components posted increases including used cars and trucks, medical care, household furnishings and operations, recreation, tobacco, and personal care.
Year-on-year, overall CPI inflation worsened and is now running at 3.8 percent and even the core pushed higher by 2.0 percent from 1.8 percent on a year-ago basis.
Here is the problem for the Fed. With today’s report, the core CPI hit the upper bound of the Fed’s implicit inflation target range of 1.5 to 2.0 percent. This is going to make it much harder for the doves in the FOMC to argue for another round of monetary easing which caused the inflation surge to begin with.