Instant Reaction: Consumer Price Inflation, September 13, 2023

The Federal Reserve has been raising interest rates to contain consumer price inflation, which was rising at a 9% clip in the summer of last year. The latest consumer price inflation in August was 3.7%, which has still not hit the desired rate of 2% and is a slight upturn from the July inflation of 3.3%. However, the trend line indicates falling inflation, especially if considering the impending sharp deceleration in overall shelter cost (rent). Rent increased 7.3% from a year ago in August, but the monthly gain was the slowest in two years at 0.29% or a 3.5% annualized rate. Private sector apartment rent data is implying even slower gains. That means that a heavyweight component of overall inflation will be much calmer in upcoming months.

Inflation will be one main determining factor in upcoming monetary policy decisions. Overdoing the rate hikes, considering that inflation is likely to calm, will unnecessarily damage the economy.