Volkswacht Bodensee - US consumer inflation heats up but unlikely to deter rate cut

The consumer price index (CPI) picked up to 2.9 percent in August, accelerating from 2.7 percent on a year-on-year basis in July, said the Labor Department, as President Donald Trump's tariffs filter through the world's biggest economy.

The figure was in line with analysts' expectations, and economists are trying to gauge if Trump's duties will bring about a one-off price increase or lead to persistently higher costs.

On a month-on-month basis, CPI rose 0.4 percent in August, the report said, also picking up from 0.2 percent in July.

And a measure of underlying inflation, stripping away the volatile food and energy components, was up by 3.1 percent from a year ago.

All eyes are on inflation numbers this week, given that these typically have some bearing on the Federal Reserve's interest rate decisions.

But "the Fed is poised to start cutting rates next week, almost regardless of what the CPI figure prints," Nationwide chief economist Kathy Bostjancic told AFP.

"The degree of the rise in consumer prices would influence the pace and degree of rate cuts this year, not whether we get them or not," Bostjancic added.

The Fed is due to hold its next policy meeting from September 16-17, and traders widely anticipate that it will lower the benchmark lending rate by 25 basis points.

This would mark its first rate cut since December –- and comes after months of pressure from Trump –- with policymakers keeping rates unchanged this year as they monitored the effects of tariffs on inflation.

With employment weakening, however, Bostjancic said that officials are pivoting more towards concerns about a labor market slowdown.

The Fed might be inclined to reduce rates to boost the economy as a result, as opposed to keeping them at a higher level when seeking to contain inflation.

The August CPI boost came as food, energy and shelter costs all increased.

Since returning to the presidency in January, Trump has imposed a 10-percent tariff on almost all trading partners and higher rates hitting dozens of these economies.

He has also separately targeted sector-specific imports such as steel, aluminum and autos with steeper levies.

Economists warn that the cumulative effect will take time to reach consumers, as many businesses stockpiled inventory in anticipation of the duties –- allowing them to stave off immediate price hikes.

R.Braegger--VB