CPI -1.5% YOY To August, Core CPI +1.4% YOY To August, Inflation Fears Subside

The US Consumer Price Index, which measures inflation at the consumer level of the economy, was +0.4% in August and -1.5% year-over-year through August. Excluding volatile oil and food costs from the readings, “Core” CPI for August was +0.1% and +1.4% YOY through August. You can view and download historical CPI data by scrolling down to our Data section on the right side of the site.

Inflation is clearly within the Fed’s comfort zone of 1-2% even though it was higher than expectations. Since February, when deflation concerns were driving markets, we’ve see-sawed each month from economic weakness to inflation fears, which cause rates to fall and rise respectively. Rates are tied to bond trading and bonds don’t like inflation so they sell off on inflation fears, pushing price down and yield (or rate) up. Much of the inflation concern last month was from rising oil prices leading into and during the summer driving season (which was confirmed today with 8.8% monthly increase in motor fuel on CPI report, by far the biggest contributor to inflation) and in a longer-term sense, many market participants feel inflation is the ultimate effect of massive government stimulus. Conversely, market traders think inflation shouldn’t be an issue for some time because aggregate demand is compromised by weakened consumers and businesses. Bond markets still rally on a report like today’s, showing weaker inflation. See yesterday’s report on Producer Prices for more on this topic.