Inflation stays hot, but Fed still focused on jobs

Core inflation for August came in a little hotter than expected but should not change the near-term dynamics for the Fed, which meets next week. The August rise was the fastest since January and the gains were broad-based with core goods rising for a third straight month and the supercore index decelerating from the prior month, but at a still high level. Tariffs continue to play a limited role in pushing up prices with tariff sensitive components climbing but not spiking suggesting that passthrough from tariffs to consumer prices may be lower (or at least slower) due to the staggered implementation of trade policy. Combined with wholesale prices, we estimate that core PCE will register 0.31% m/m for August, which would be in line with the consensus and represent the fifth consecutive increase since March. Still, we don’t think today’s reading will shake the Fed, which is still poised to cut by 25bps next wee k. The Fed’s reaction function is more focused on the labor market . R ecent news - last week’s dismal employment report, Tuesday’s downward revision for payrolls, and today’s spike of initial jobless claims - will dampen the impact of today’s par-for-the-course CPI print.