CPI: Cooler But Less Clear On Future Disinflation

Bottom Line: Consumer prices rose nearly as expected in August at the headline level, driven by higher gasoline prices. Core prices rose a bit more than expected, with an upside surprise in transportation services (mostly airfares). Owner's Equivalent Rent (OER), the largest component of the core, was the biggest driver of the increase, up 0.29%, the slowest reading of this cycle, meaning lower prices last year are finally starting to come through in OER. Services less rent, a favored indicator of Fed Chair Powell, accelerated with a nearly 0.5% reading in August, now up 3.3% annualized in the last three months. Finally, used car and truck prices were lower again, a deflationary force for several months now that looks unlikely to persist.  Overall, this report showed continued easing in inflation pressures in the medium- and longer-term trends. However, looking through the details, it is becoming less clear where more disinflation will come, potentially leaving the core run rate around 3% annualized without more downside surprises.