U.S. Consumer Inflation Accelerates in August Amid Jump in Cost of Gasoline

The U.S. Dollar closed lower against a basket of major currencies on Thursday after an upbeat report on U.S. consumer inflation failed to impress investors. The dollar lost ground even though the inflation data showed a faster-than-forecast rise in domestic consumer prices.

December U.S. Dollar Index futures settled at 92.112, down 0.396 or -0.43%.

U.S. Economic News

U.S. consumer inflation accelerated in August amid a jump in the cost of gasoline and rents. According to the U.S. Labor Department, the Consumer Price Index rose 0.4 percent last month after edging up 0.1 percent in July. August’s gain was the largest in seven months and lifted the year-on-year increase in the CPI to 1.9 percent from 1.7 percent in July.

Economists and traders had forecast the CPI rising 0.3 percent in August and climbing 1.8 percent year-on-year.

The biggest influence on the CPI was gasoline prices which surged 6.3 percent, the biggest gain since January, after being unchanged in July.

The Core CPI report, which strips out the volatile food and energy components, increased 0.2 percent in August. That followed four straight monthly increases of 0.1 percent. In the 12 months through August, the Core CPI increased 1.7 percent.

In other news, Weekly Unemployment Claims declined 14,000 to a seasonally adjusted 284,000 for the week-ended September 9. This came as a surprise because it was expected to rise in further reaction to the impact of Hurricane Harvey on the Texas Gulf Coast region.

U.S. Treasury Yields

U.S. Treasury yields were mixed on Thursday as investors tried to figure out the impact of the consumer inflation report on future Fed interest rate decisions.

The yield on the benchmark 10-year Treasury Notes, which moves inversely to price, rose to 2.195 percent, while the yield on the 30-year Treasury bond fell to 2.774 percent.

The rise in inflation was probably not enough to suddenly change a dovish Fed to hawkish, but it looks as if it was sufficient enough to keep up the possibility of a rate hike in December. At the end of the trading session on Thursday, interest rate futures implied traders saw a 50 percent chance of a rate increase in December, up from 41 percent.

Gold

Gold futures bounced back from a two-week low to close higher on Thursday despite data showing a faster-than-forecast increase in domestic consumer prices in August.

The precious metal was also supported by the news that the Chinese bitcoin exchange BTCChina’s announcement that it would stop all trading from September 30. This could create an asset allocation shift back into more traditional safety plays in the gold market.

Crude Oil

U.S. West Texas Intermediate and international-benchmark crude oil continued to surge in reaction to the International Energy Agency (IEA) forecast on Wednesday that the market would continue to tighten as fuel demand increased.

On Wednesday, the IEA raised its estimate of 2017 world oil demand growth to 1.6 million barrels per day (bpd) from 1.5 million bpd.

The IEA also said the global oil glut was shrinking thanks to strong European and U.S. demand, as well as production declines in OPEC and non-OPEC countries.