US: Focus on August CPI report - BBH

In view of analysts at BBH, the US August CPI is key economic report left today after the strong Australian jobs report and the disappointing Chinese data. 

Key Quotes

“The story is well known.  Price pressures have softened this year in the US at both the headline and core levels.  This has become a concern for several Fed officials, though most (according to recent FOMC minutes) still think it is a result of temporary factors, but seem increasingly open the possibility of a structure shift.”  

“Headline consumer prices in the US have averaged a monthly increase of 0.1% this year after 0.2% last year.  The headline has not increased by 0.2% since April.  The median estimate in the Bloomberg survey is for a 0.3% m/m rise in August.  After what seemed like a soft PPI report yesterday, some fear a disappointing report.  While that is possible, the finished consumer goods component of the PPI rose 0.6%, which augers against a downside surprise today.”  

“The core rate has not risen by more than 0.1% since February.  The median estimate looks for a 0.2% increase in August.  However, due to the base effect (last August core CPI rose 0.3%), the year-over-year rate could tick down to 1.6% from 1.7%.  That might give the bond market a pause with the 10-year yield near 2.2% after slipping to almost 2.0% on September 8.  US also reports weekly jobless claims, which are likely to remain distorted by the storm impact.”

“Tomorrow the US reports retail sales.  Redbook weekly report of chain store sales may help to offset some of the drag of weaker auto sales.  US consumption remains firm after a soft Q1, underpinned by job creation, small but positive real wage growth, and the increased use of credit.”  

“Perceptions of the risk of a December rate hike have risen in recent days.  Bloomberg's calculation has increased the odds from almost 27% at the end of last week to almost 39% chance now.  By the CME's interpolation, the odds have risen from 31% to 46%.”