CPI: Surprise Increase, Despite Lower Gasoline Prices

Bottom Line: CPI rose slightly in August, countering expectations for a decline due to lower gasoline prices, as core CPI jumped sharply, up 0.6% on the month. Owner's Equivalent Rent (OER), a key measure of shelter prices and nearly a third of core CPI, rose at its fastest pace in this cycle, up over 0.7% on the month and 8.5% annualized over the last three months, accelerating relative to the 12-month pace of 6.4% as the lagged impact of higher home prices worked through the CPI methodology. Medical care services prices, the most significant contributor to volatility before the pandemic but quiet until recently, jumped nearly 0.8%, its largest increase in years. Airfares and used car prices were lower, but not nearly enough to offset the surprises in those two large categories. Overall, while consumers saw some welcome relief in energy prices in August, price pressures remained stubborn, with higher medical care service prices hurting consumers. Medical care services are a big concern for the trend, potentially offsetting some of the deceleration in OER that should come later this year based on historic lags with home prices.

The CPI ROSE by 0.12% in August, compared with market expectations for a decline of 0.10%.

Overall consumer prices are now 8.2% ABOVE their year-ago level; in August 2021, consumer prices were 5.2% ABOVE their year-ago level.
 
The Core CPI ROSE by 0.57%, compared with market expectations for an increase of 0.30%.  Prices for commodities excluding food and energy commodities rose by 0.5%.

Core consumer prices are now 6.3% ABOVE their year-ago level; in August 2021, consumer prices were 4.0% ABOVE their year-ago level.