U.S. inflation drops back to deflation in August, down 0.1%

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1% in August on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all-items index rose 0.2%.

This wasn’t unexpected, although the consensus according to Barrons was a 0.0% number. Lower gasoline prices (down 4.1% in the month) and fuel oil (down 8.1%) were the cause of August’s decline. The overall energy index is down 15.1% over the last 12 months.

Other items showed price increases: Food was up 0.2% in the month; apparel, 0.3%; and medical care commodities, up 0.3%.

Core inflation, which strips out food and energy, increased 0.1% in August and is up 1.8% over the last 12 months. While core inflation remains mild, it is approaching the Federal Reserve’s target of 2.0% annual inflation.

Holders of TIPS and I Bonds are also interested in non-seasonally adjusted inflation, which is used to set future interest rates on I Bonds and to adjust the principal balance on TIPS. In August, the CPI-U inflation index was set at 238.316, down 0.14% for the month and up 2.0% over the last 12 months.

For holders of I Bonds, these numbers are significant. With one month remaining in the March to September adjustment period, inflation is up 0.93%, which would result in a new inflation-adjusted rate of 1.86% (annualized) on Nov. 1. That would be up from the current number of -1.60%. It’s possible we could also see the fixed rate rise above 0.0% on Nov. 1.

Keep  some cash available, just in case. To view the long-term trends, visit my Tracking Inflation and I Bonds page.

inflation

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