Released today, the September Consumer Price Index (CPI) showed prices rising at a 3% annual rate—up slightly from 2.9 percent in August and above April’s post-pandemic low of 2.3%, according to the Bureau of Labor Statistics. The 3% rate of increase was the highest annual rate since January.
How did this study ever get out? In an obscure document filed with the Federal Register last week the Labor Department said that “the near total cessation of the inflow of illegal aliens” is threatening “the stability of domestic food production and prices for U.S. consumers.
“Unless the Department acts immediately to provide a source of stable and lawful labor, this threat will grow,” with increased funding for immigration enforcement from the One Big Beautiful Bill Act, the Labor Department said in the Federal Register.
Inflation, as measured by the Personal Consumption Expenditure (PCE) index, the Federal Reserve’s preferred inflation index, rose 0.3% in August and attain annual rates 2.7% over the past year. Core inflation (taking out volatile energy and food prices) was up 0.2% over the month and 2.9%, yearly. Each of these rates came in at expectations. Each rate remains above the Fed’s target of 2% inflation. In other data today, annualized consumer spending growth was revised upwards to 1.6% through August. To be sure, 1.6% isn’t blazing spending but it is solid growth. So nothing has really changed in the economic picture.
The Dot Plot economic projections published by the Federal Reserve yesterday are really an extraordinary document.
Inflation, as measured by the Consumer Price Index, increased in August at a 2.9% annual rate. That’s faster than the annualized rate of increase in June and July. On a monthly basis, prices rose 0.4% — a bit hotter than expectations. Higher shelter were the largest factor in the monthly rise, though food prices also jumped 0.5%. Ahead of next week’s meeting the Federal Reserve’s looking at inflation that not only isn’t falling toward its 2% target but that also is creeping slowly upward. At the same time a separate report also released today showed that new applications for weekly unemployment benefits jumped to 263,000 last week, the highest level since October 2021. This is just the latest data point showing that the economy is slowing. So what is the Fed to do?
Thursdays’s Consumer Price Index inflation report for August will be the big macroeconomic news of the week. It comes less than a week before the Federal Reserve’s Open Market Committee makes its big decision on the benchmark interest rate at its September 17 meeting.
Economists now project that the headline all-items cutting interest rate will show a monthly increase of 0.3% to 0.4% with the annual rate of increase climbing slightly to 2.9% to 3.0%. That would be up from an annual rate of 2.7% in July. Core CPI (excluding food and energy) is forecast to rise around 0.2%–0.3% month-over-month with the annual core rate anticipated to remain steady at about 3.1%. There is some worry that the report will come in hotter than expected.
Some context on the evening before the 8:30 a.m. ET release of the August jobs report. This begins a two-week period with an extraordinary line-up of potentially economy and market moving events.
Today’s core Personal Consumption Expenditures inflation report, the Federal Reserve’s preferred inflation measure, came in with a 0.3% increase for July. All items PCE inflation rose 0.2%. The annual core inflation rate was at 2.9% in July. The all-items annual rate was 2.6%.
Those numbers were right at economist expectations. But that’s part of the problem: without a surprise slowdown in inflation, it looks like the inflation rate is stubbornly stuck significantly above the Fed’s target of 2.0%. And if inflation is stuck at this level, it will be hard for the Federal Reserve is aggressively cut interest rates
The Personal Consumption Expenditures index, the Federal Reserve’s preferred measure of inflation, is scheduled for release tomorrow. The core index, that is prices excluding energy and food, for July’s projected by economists to show a 2.9% year-over -year increase. That would be the fastest rate of increase in five months and is likely to renew doubts about a Federal Reserve interest rate cut at the central bank’s September 17 meeting.
Good news. U.S. manufacturing is expanding at the fastest rate in more than three years on stronger demand. The S&P Global flash August factory purchasing managers index rose 3.5 points to 53.3, the highest since May 2022, according to data released Thursday. Figures above 50 show the sector is expanding.
Stocks dropped for a fourth day in a row on Wednesday, August 20. So far I think all we’re seeing is typical seasonal weakness with profit taking in the market’s most expensive technology stocks–plus nervousness ahead of Friday’s Jackson Hole speech by Federal Reserve chair Jerome Powell. Will he say anything to disrupt the financial market’s belief in a September 17 interest rate cut or to lower expectations for subsequent cuts in the rest of 2025? Today’s release of minutes from the Fed’s July 30 meeting didn’t help the market’s nerves.
U.S inflation at the wholesale level accelerated in July by the most in three years, suggesting companies are passing along higher import costs related to tariffs. The producer price index (PPI) increased 0.9% from a month earlier, the largest advance since consumer inflation peaked in June 2022, according to a Bureau of Labor Statistics report out Thursday. The PPI rose at a 3.3% annual rate in July. That’s significantly higher than the 2.7% annual increase in the all-items CPI report released on tuesday. Or the 3.1% annual rate of increase in the core CPI. It’s not a lock but usually price increases at the wholesale level show up with a lag in consumer prices.
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