Echoing yesterday's unexpected PPI drop, Consumer Price growth slowed dramatically in August, missing expectations by the most since May 2017 (following the first monthly drop in PPI since Jan 2017) sparking a drop in the dollar and bond yields.

CPI slowed to 2.7% YoY versus expectations of a  2.8% rise:

 

Core CPI seemed to hit the ceiling once again and slump:

Once again all US inflation is contained in services, with core goods on the cusp of deflation:

The moderation in the core CPI reflected a 1.6% drop in volatile apparel prices.

Even so, the broader slowdown follows data showing a surprise drop in producer prices and suggests the path of inflation could be softer than expected.

At the same time, freight prices and rising wages, along with tariffs and counter- levies, may keep putting upward pressure on inflation. Additionally, the index for medical care fell 0.2% for a second month.

The shelter category, responsible for about one-third of the CPI, showed a 0.3 percent gain, in line with recent increases but slowed YoY, up 3.4% YoY, down from 3.5% and rent inflation rose 3.61% YoyY, down from 3.63%

Prices of new automobiles were unchanged, the first month without a gain since April, while used cars and trucks rose 0.4 percent.

Airfares rose 2.4% following a 2.7% advance in July, amid higher fuel prices, one of the biggest costs for airlines.
Gasoline prices increased 3% in August from the prior month, the most since April, and were up 20.3% Y/Y.

There was some good news: as inflation stalled and wages rose, real hourly earnings posted a 0.2% increase in August, the first in 4 months.

 

Meanwhile, markets were not impressed by the inflation print, which sparked a drop in the dollar...

While bonds once again defied the bears as yields tumbled to the lowest since Monday.