US: August CPI lends credence to Fed’s perspective of transitory inflation – Wells Fargo

Data released on Tuesday showed the Consumer Price Index rose 0.3% in August, below the 0.4% expected. According to analysts at Wells Fargo, a softer increase in the August CPI lends credence to the Federal Reserve’s view that the flurry of inflation experienced earlier this year will prove “transitory.” 

Key Quotes: 

“Consumer price inflation cooled more than expected in August, giving credence to the notion that this spring’s surge in prices was indeed temporary.”

“Yet while prices in categories driving the increase earlier in the year have cooled off, others are picking up the baton. Inflation looks set to remain elevated as a result, prolonging the debate over how long “transitory” is.”

“While the sharpest price hikes associated with reopening and supply shortages are likely behind us, we do not expect inflation to quickly snap back to its anemic pre-COVID pace.”

“We expect the CPI to remain around 5% through the first quarter of next year.”

“The longer inflation remains elevated, the more likely it is to become entrenched. Currently, longer-term measures of inflation expectations have come off the mat from their historic lows and are not wildly inconsistent with 2% inflation over time. That is likely to assuage the fears of FOMC members increasingly uncomfortable with recent inflation readings, and, along with dampened growth prospects surrounding Delta, give cover to wait for a bit more progress on the labor market front before starting to scale back accommodation.”