Benign US CPI inflation is unlikely to stop the Fed from cutting interest rates

US consumer price inflation (CPI) rose 0.1% during the month of August, according to data published today by the US Bureau of Labor Statistics.

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Daniel Casali
Published: 13 Sept 2019 Updated: 13 Jun 2022

US consumer price inflation (CPI) rose 0.1% during the month of August, according to data published today by the US Bureau of Labor Statistics. The year-on-year increase in the headline inflation is 1.8%, the same rate as the previous month, while the core rate (excluding food and energy prices) is 2.3%, up slightly from 2.2% in July.

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Commenting on the release, Daniel Casali, Chief Investment Strategist at Smith & Williamson, said:

“Despite underlying core CPI inflation tracking above the Federal Reserve’s target ceiling of 2%, the outlook for consumer prices is still benign. The Fed’s preferred inflation indicator, the personal consumption expenditures deflator, is running lower at around 1.6% per year. We do not expect the Fed to change its interest rate policy based on these figures. We still expect the Fed to cut interest rates one or two times for the remainder of this year.

“Inflation continues to be subdued despite the potential impact of higher tariffs on imported consumer goods from China. The effect of cheaper consumer goods from globalisation continues, along with improvements in technology that lowers the cost of production.”

“Disinflationary forces are also being fed by the high level of debt, not just in the US, but globally. With no signs of restraint and a widening US fiscal deficit, debt levels will continue to rise. Over the longer term, higher levels of public debt borrow growth from the future and encourages the private sector to raise the savings rate, which is disinflationary.”

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.

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This article was previously published on Smith & Williamson prior to the launch of Evelyn Partners.