August core CPI not quite in line with expectations – UOB Group

August CPI came in as expected, but core CPI inflation unexpectedly rose to 0.3% m/m, on higher shelter costs and pick up in core-services inflation, UOB Group Senior Economist Alvin Liew notes.

No change to the view for 25 bps cut in September FOMC

“Headline CPI was in line with expectations as it rose by 0.2% m/m, 2.5% y/y in August (Jul: 0.2% m/m, 2.9% y/y). However, core CPI re-accelerated as it rose by 0.3% m/m (from 0.2% m/m in Jul) while compared to 12 months ago, it stayed elevated at 3.2% y/y. Shelter costs was the key factor driving inflation as it rose in August at the fastest m/m pace since start of 2024, while core services inflation also accelerated on a m/m basis in Aug, for the second month in a row.”

“We still expect headline CPI inflation to ease and average lower in 2024 (compared to the 4.1% recorded in 2023), but it is now likely to be higher at 2.9% than our previous forecast of 2.5%. And while core inflation may also ease, it is now likely to average 3.3% in 2024 (from previous forecast of 2.5%). It is still a significant moderation from the 4.8% average in 2023 but remains well above the Fed’s 2% objective.”

“The not-so-cool August core CPI certainly decimated expectations for a bigger 50-bps rate cut in September FOMC, but the view of Fed starting its rate cutting cycle in September remains intact. We reiterate our base case for the Fed to begin its rate cut cycle in the 17/18 September FOMC with a 25-bps cut to the Fed Funds Target Rate (FFTR) followed by another 25bps in Dec FOMC and 100 bps of cuts in 2025 (one 25- bps cuts per quarter).”