The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2% in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, inflation has increased 1.7%.
This was the first decline in ‘headline’ inflation since April 2013. The August number fell well below the consensus prediction of 0.0%, primarily driven by by declines in energy indexes, especially gasoline. The energy index fell 2.6%, with the gasoline index declining 4.1% and the indexes for natural gas and fuel oil also decreasing.
Beyond energy, the CPI-U report showed modest increases in prices for food, shelter and new vehicles, all at 0.2%.
Holders of Treasury Inflation-Protected Securities and I Bonds are also interested in the non-seasonally-adjusted inflation number, which is used to adjust the principal of TIPS and set future interest rates for I Bonds. In August, non-seasonally-adjusted inflation also came in at -0.2%, and 1.7% for the last 12 months.
I have updated my ‘Tracking Inflation and I Bonds‘ page to reflect these new August numbers. The I Bond inflation-adjusted interest rate will re-set on Nov. 1, based on non-seasonally-adjusted CPI-U for March to September. Now, with one month to go, the potential annualized I Bond rate has dropped to 1.32%. September’s number is the one missing piece.
‘Core inflation’ – which strips out food an energy – was 0.0% in August and 1.7% over the last 12 months.
The weak inflation numbers could take pressure off the Federal Reserve, which is pondering when to begin raising its pivotal short-term rate. We’ll be hearing more today from the Fed after the close of its two-day meeting.
And the negative August number could weaken demand for Thursday’s reopening of a 10-year TIPS, CUSIP 912828WU0. I’ll be checking in on that Thursday morning and after the auction.
Here is the one-year trend in seasonally-adjusted CPI-U: