Stable inflation fuels taper talk in the States

City A.M. Reporter
INFLATION readings in the US barely rose in August, but gains in rents and medical care costs pointed to a stabilisation in underlying inflation that could allow the Federal Reserve to start trimming its bond purchases.

The Labor Department said yesterday its consumer price index (CPI) edged up 0.1 per cent last month after rising 0.2 per cent in July. In the 12 months through August, the increase in the CPI slowed to 1.5 per cent after advancing two per cent in July.

Stripping out the volatile energy and food components, the so-called core CPI rose 0.1 per cent after increasing by 0.2 per cent in each of the past three months.

The steady rise in core CPI could ease concerns among some Fed officials about a disinflationary trend becoming entrenched.

The Fed yesterday began its two-day meeting to set interest rates and consider the so-called tapering of its bond purchases.

“The US CPI came in a little lower than expected at 1.5 per cent year on year, but this doesn’t necessarily shed any light on the main talking point of the moment – the factor by which the Fed is going to reduce asset purchases going forward,” said Will Nicholls, a dealer at Capital Spreads.