August Inflation Rate Falls Short of Forecasts, Markets React

The US inflation rate for August has come in lower than expected, with a month-over-month increase of 0.2% versus forecasts of 0.3%. The Consumer Price Index (CPI) deflator is now at 0.1% MoM, down from the initial reported 0.2%. These changes are largely due to methodological updates in calculating portfolio management fees, software, and healthcare costs.

The annual rate of core inflation has also decreased, coming in at 3%, below the consensus forecast of 3.3%. Although still above the 2% target, the month-over-month trajectory is now more encouraging for reaching this goal. The 3M annualized rate has dipped to 2%, which is in line with the desired pace.

This development supports NY Fed President John Williams' comments on Tuesday that there is no immediate need for another rate hike. As a result, market expectations have shifted, with only 9 basis points now priced in for the October FOMC meeting, down from 18 basis points earlier in the day. The December meeting has a cumulative 29 basis points priced versus 39 at Monday's close.