US Inflation Holds Steady at 3.4%, Markets Reversal Surprises

The US August Consumer Price Index (CPI) report was released today, showing a headline inflation rate of 3.4%, matching expectations. The core reading, which excludes volatile food and energy prices, also came in at 2.4% year-over-year, in line with forecasts.

However, the market's initial reaction to the report was one of buying the US dollar, as the slight beat on core month-over-month inflation caught investors off guard. But this rally has since reversed, with risk assets picking up and oil prices down by $3.21 per barrel, possibly due to reports that Gulf countries are considering a plan to let Iran and Oman control shipping through Hormuz.

Core sub-components saw some notable changes, including owners' equivalent rent at 0.2% versus a prior reading of 0.3%, and lodging away from home at 2.4% versus -2.8% previously. Wireless telephone services experienced the largest increase on record, up 5.9% month-over-month.

Gasoline prices alone accounted for 0.140 percentage points of the 0.4% headline inflation rate, but this may be a smaller contributor in September due to rising energy costs. Motor vehicle insurance saw its lowest reading since November 2020 at -5.1% year-over-year, while health insurance was down 8.5% y/y.