US DATA PREVIEW: August Core CPI Seen +0.2%, Headline +0.1%

By Brooke Migdon

     WASHINGTON (MNI) - U.S. consumer prices are likely to rise more slowly in

August due to declines in energy prices while core CPI should notch another

modest gain as tariffs start to boost the cost of goods from China.

     Headline CPI is expected to fade to a 0.1% increase following a 0.3% gain

in July, according to a market median.

     Headwinds from oil prices will likely push energy prices down. Gasoline

prices, which account for 4% of the CPI basket, declined 3.5% last month,

signaling a slow month for energy that may drive down the August CPI headline

numbers.

     Market expectations call for a more modest rise in core CPI, seen as

slowing to a 0.2% gain in August from 0.3% in July. 

     Major effects of tariffs on U.S. consumer goods imports from China are

unlikely to be felt just yet, as President Donald Trump's first round primarily

focused on capital goods such as machinery purchased by manufacturers. Although

manufacturing and business activity have since shuddered, reflected in a recent

contraction of the August ISM Manufacturing PMI, consumer spending in the U.S.

has remained strong.

     However, tariffs that took effect Sept. 1 and others due on Dec. 15 now

target U.S. consumer goods including apparel and electronics. Prices of U.S.

consumer goods are likely to increase in the near-term and continue to rise

steadily through the end of the year. Recent survey evidence from the Dallas Fed

suggests that while manufacturers are more likely to absorb higher prices into

their profit margins, retailers are much more likely to pass them onto their

customers.

     Prices of goods facing tariffs have already increased 3%, according to a

Goldman Sachs analysis of Labor Department data published in August.

     Additionally, strong wage growth in recent months will likely help support

the core CPI number. Average hourly earnings posted a 3.2% year-on-year gain in

August.

     The forecasted monthly increases in headline and core CPI are expected to

leave annual core inflation tracking at 2.3% and headline inflation at 1.7%,

still short of the Fed's 2.0% PCE inflation target.

     While trade risks from the trade war with China are dominating talks, some

Fed officials have also said persistently weak inflation is one reason to

consider more stimulus.

--MNI Washington Bureau; +1 202 371 2121; email: brooke.migdon@marketnews.com

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