US DATA: High Housing Contribution To CPI Could Mean Softer PCE Translation

The acceleration in August core CPI was largely generated by core services, and in turn, housing. See table in image below.

• Core goods remained in deflation, subtracting -0.04pp from the overall 0.28% M/M core CPI figure, vs -0.07pp in July; core services meanwhile contributed 0.31pp to core, vs 0.24pp in July.
• The core goods drag from used cars narrowed to 0.02pp from 0.06pp prior.
• In services, housing added 0.20pp to total core inflation, up from 0.17pp prior; lodging (0.03pp from 0.00pp) and airfares (0.04pp from -0.02pp) were other standouts.

It's worth noting from these contributions that the read-through for the Fed's preferred PCE gauge will be influenced by the PPI data out tomorrow.

• The PCE basket has a lower weighting for housing, and uses PPI inputs for airfares, so there is potential for a softer PCE figure than core CPI implies.
• However, medical services and vehicle insurance were relatively soft contributors to August CPI, and those too are PCE categories that largely use non-CPI inputs (One important caveat is that CPI dental services - which does go into the PCE reading - was -0.6% M/M,  even weaker than overall medical care services -0.1% M/M).
• Analyst Aug core PCE forecasts coming into today's report had clustered around 0.2% M/M.