A New High in CPI Growth

Economic Blog
September 13, 2019

Consumer inflation has accelerated recently, bucking disinflation and deflation concerns that had permeated financial markets earlier this year.

In August, the core Consumer Price Index (CPI) increased at least 0.3% for a third straight month, the first time that’s happened since April 1995. As shown in the LPL Chart of the Day, core CPI rose 2.4% year over year last month, one of the fastest paces of growth in this economic cycle.

Gauges of consumer inflation slowed earlier in 2019 as trade uncertainty weakened global demand. Then, consumer spending picked up and the United States continued to increase tariffs on Chinese imports, two catalysts that likely could’ve pushed U.S. companies to raise prices.

Consumer-Inflation-Reaches-New-High-in-August_1

“Consumer inflation has shown signs of life recently after a tepid start to the year,” said LPL Financial Chief Investment Strategist John Lynch. “We believe full employment, rising wages, and low interest rates will help sustain healthy inflation growth going forward.”

However, surging inflation could complicate the Federal Reserve’s (Fed) plans. August’s year-over-year growth in core CPI corresponds with core personal consumption expenditures (PCE) growth around 2%, based on the historical relationship between the two gauges. The Fed is eyeing 2% year-over-year core PCE growth as an inflation target, in order to uphold its dual mandate of price stability and maximum employment. Still, we (and market participants) expect a potential 25 basis point (0.25%) rate cut at the Fed meeting on September 18 as a response to trade uncertainty.

IMPORTANT DISCLOSURES

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. The economic forecasts set forth in this material may not develop as predicted.

All indexes are unmanaged and cannot be invested into directly. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. All performance referenced is historical and is no guarantee of future results.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

Core CPI is a subset of the total Consumer Price Index (CPI) that excludes the highly volatile food and energy prices. It is released by the Bureau of Labor Statistics around the middle of each month

Personal consumption expenditures (PCE) is a measure of price changes in consumer goods and services released monthly by the Bureau of Economic Analysis (BEA). Personal consumption expenditures consist of the actual and imputed expenditures of households; the measure includes data pertaining to durables, nondurables, and services. It is essentially a measure of goods and services targeted toward individuals and consumed by individuals.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

This Research material was prepared by LPL Financial, LLC.

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