Did August form an Inflation Top?

Macro Perspectives

Stocks finished down nearly 4% for August, driven by the declines of just the past four days.

Among the many decliners for the month, bonds were down (-4%), gold was down (-4%), copper was down (-1%), most currencies not called the dollar (-2% to -5%)... and crude oil was down (-5%).

This is all, of course, attributed to the chorus of tough talk by central bankers on the rate path. What determines the tough talk? Inflation.

With that, the books are now closed on the month of August. The August inflation report will come on September 13th, a week ahead of the Fed's next meeting on rates. So, let's take a look at what we know is a key input into the inflation calculation: Gas prices.

We've looked at this chart the past couple of months - it's a 10-year period that shows how closely gas prices and the consumer price index track ...

This gas price input has been a huge predictor of the month-over-month CPI number for much of the year.

We looked at this in July, ahead of the June inflation data - gas prices had exploded 11% higher, and CPI came in scorching hot (+1.3% monthly change).

We saw the opposite in the July data - gas prices were down 7%, and the monthly change in CPI was flat.

So, what did gas prices do in August?

The Energy Information Administration (EIA) does a weekly survey of gas stations across the country - those survey results show a fall in gas prices of 12% in August. You can see in my updated table below how this gas price input has reflected in the inflation report.

More important than the backward looking annual change in CPI is the monthly change. Again, last month it was flat. This August report sets up for another soft number. If it weren't for the clues on rising food prices, I'd say this August number could even be negative. Nonetheless, a soft number would be good news.

For an additional clue, the Chicago purchasing manager's report, released yesterday morning, showed no monthly change in the prices paid in August.