LPL: A New High in CPI Growth
September 13, 2019
Consumer inflation has accelerated recently, bucking disinflation and deflation concerns that had permeated financial markets earlier this year.
In August, the core Consumer Price Index (CPI) increased at least 0.3% for a third straight month, the first time that’s happened since April 1995. As shown in the LPL Chart of the Day, core CPI rose 2.4% year over year last month, one of the fastest paces of growth in this economic cycle.
Gauges of consumer inflation slowed earlier in 2019 as trade uncertainty weakened global demand. Then, consumer spending picked up and the United States continued to increase tariffs on Chinese imports, two catalysts that likely could’ve pushed U.S. companies to raise prices.
“Consumer inflation has shown signs of life recently after a tepid start to the year,” said LPL Financial Chief Investment Strategist John Lynch. “We believe full employment, rising wages, and low interest rates will help sustain healthy inflation growth going forward.”
However, surging inflation could complicate the Federal Reserve’s (Fed) plans. August’s year-over-year growth in core CPI corresponds with core personal consumption expenditures (PCE) growth around 2%, based on the historical relationship between the two gauges. The Fed is eyeing 2% year-over-year core PCE growth as an inflation target, in order to uphold its dual mandate of price stability and maximum employment. Still, we (and market participants) expect a potential 25 basis point (0.25%) rate cut at the Fed meeting on September 18 as a response to trade uncertainty.