August CPI data has just been released, and while headline CPI was in line with expectations, core CPI inflation unexpectedly rose to 0.3% m/m. This increase was driven by higher shelter costs and a pick up in core-services inflation, according to UOB Group Senior Economist Alvin Liew.
Analysis: No Change to the View for 25 bps Cut in September FOMC
Despite the rise in core CPI, there is still no change to the view for a 25 basis points cut in the upcoming September FOMC meeting. The overall inflation outlook for 2024 has been revised slightly higher, with headline CPI expected to average 2.9% and core inflation to average 3.3%.
While these numbers are lower than the 2023 averages, they remain well above the Fed’s 2% target. The Fed is still expected to start its rate cutting cycle in September, with a 25-bps cut to the Fed Funds Target Rate. This will be followed by another cut in December and a total of 100 bps of cuts in 2025.
Impact on Your Finances
For the average person, this means that borrowing costs may decrease slightly in the coming months, making it a good time to consider refinancing or taking out a loan. However, it also indicates that inflation may remain elevated, affecting the prices of goods and services.
Overall, the rise in core CPI inflation highlights the delicate balance that the Fed must strike between supporting economic growth and controlling inflation. It’s important to stay informed about these developments and how they can impact your financial decisions.