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August Inflation Slows, Core Prices See Weakest Gains In Five Months As Fed Meeting Looms

Core consumer price increases increased at the weakest pace since February last month, suggesting inflation pressures linked to COVID pandemic are beginning to ease.

U.S. consumer price inflation eased modestly last month, data from the Bureau of Labor Statistics indicated Tuesday, suggesting that the Federal Reserve's forecast of 'transitory' inflation may be coming good as supply chain disruptions and COIVD impacts ease.  

Headline CPI for the month of August was estimated to have risen 5.3% from last year, down from 5.4% in July -- the highest since 2008 -- and 0.3% when compared to the previous month, with both tallies coming in below Wall Street forecasts. 

So-called core inflation, which strips-out volatile components such as food and energy prices, rose 0.1% on the month, the slowest since February, and 4% on the year, the report noted, down from last month's 4.3% reading, which was near to the highest levels since the early 1990s.

"With the inflation read coming in lighter than expected, there’s a glimmer of hope that prices are finally beginning to normalize, but we’re far from fully out of the woods when it comes to supply chain issues and raw material shortages," said Mike Loewengart, managing director for investment strategy at E*TRADE Financial. "So bottom line is investors should neither let their guard down, nor think the Fed will alter their course as a result of this morning’s data." 

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U.S. equity futures traded higher immediately following the data release, with futures contracts tied to the Dow Jones Industrial Average indicating a 140 point opening bell jump and those linked to the S&P 500 priced for a 19 point move to the upside.

Benchmark 10-year U.S. Treasury bond yields, meanwhile, edged lower to 1.325%, while the dollar index was marked 0.1% lower against a basket of its global peers at 92.611.

Last week, the Labor Department said August producer prices rose 8.3% from last year, a faster-than-expected headline reading that was the biggest on record, but largely fueled by supply-chain disruptions linked to coronavirus pandemic.

Earlier this month, the Bureau for Labor Statistics said 235,000 new jobs were created last month, a figure that fell well shy of Street forecasts, with headline unemployment rate falling to a post-pandemic low of 5.2%. 

The BLS noted that hourly wages were up 0.6%, and 4.3% on the year, however, to $30.73 per hour, with both figures coming in ahead of Street forecasts as the estimated number of unfilled positions in the world's biggest economy neared an all-time high of 11 million.