US inflation loses upside traction in August – UOB

Senior Economist at UOB Group Alvin Liew reviews the recently published US inflation figures during last month.

Key Takeaways

“On Tue (14 Sep), the latest CPI data released by US Bureau of Labor Statistics (BLS) showed price inflation stayed elevated in August but also pointed to further evidence of cooling as the m/m pace slowed more than expected. Core CPI inflation also increased at a slower than expected pace, alleviating some concerns about runaway inflation and providing tentative signs that prices may have peaked.”

“Compared to 12 months ago, CPI inflation stayed elevated at 5.3% y/y in Aug (edging a bit lower from 5.4% in Jul), in line with Bloomberg Est of 5.3% y/y but sequentially, CPI increased at a slower pace of 0.3% m/m (down from 0.5% m/m in Jul), slightly below Bloomberg median forecast of 0.4% m/m. Core CPI (which excludes food and energy) increased at an even slower pace of 0.1% m/m in Aug (from 0.3% m/m in Jul and also lower than Bloomberg Est of of 0.3%.). Core inflation eased lower to 4.0% y/y, from 4.3% in Jul, and lower than Bloomberg Est of 4.2%.”

“US headline CPI inflation will likely remain elevated in Sep 2021, continued to be driven by transport- and energy-related components (that have been mainly responsible for the higher-than-expected inflation readings in 2Q and most of 3Q). And while the upside price pressures related to the US economy’s re-opening are starting to ease, the lingering supply chain/logistics bottlenecks may still keep some portions of inflation pressure intact for now before tapering off next year. Going forward, we note that if the items that are expected to exert a more persistent trend to inflation (such as food, shelter and energy) continue to increase at a faster pace, this will lead to a further divergence between headline and core CPI inflation. We expect US headline CPI inflation to average at 4.5% in 2021, before easing to 2.0% in 2022, while core inflation may average 3.5% this year, before easing to 1.6% in 2022.”