NEW YORK (Reuters) – Underlying U.S. consumer prices increased at their slowest pace in six months in August, suggesting that inflation had probably peaked, though it could remain high for a while amid persistent supply constraints.

The Labor Department said on Tuesday its Consumer Price Index excluding the volatile food and energy components edged up 0.1% last month. That was the smallest gain since February and followed a 0.3% rise in July. The so-called core CPI increased 4.0% on a year-on-year basis after advancing 4.3% in July.

Overall CPI rose 0.3% after gaining 0.5% in July. In the 12 months through August, CPI increased 5.3% after soaring 5.4% year-on-year in July.

STORY:

MARKET REACTION:

STOCKS: S&P e-mini futures turned positive and were last up 0.31%, pointing to a firm open on Wall Street

BONDS: Yields on benchmark 10-year notes fell to 1.3293%. Two-year Treasury yields fell to 0.2110%

FOREX: The dollar index extended a slight loss and was off 0.31%.

COMMENTS:

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT

“Better than expected (data) and that’s fuelling the rise in the Dow futures. The CPI was only up three tenths of percent versus four tenths estimate and below the last month, that’s giving a little bit of encouragement for the overall market.”

“And so while market participants are cautious on inflation, at least this was a good sign and when you partnered up with a PPI, it’s moving in the right direction.”

“It doesn’t force the Fed’s hand, so there’s a possibility that the Fed could drag its feet and when they do announce tapering, it may be smaller than what the Street may be looking for that time.”

“Right now I’m not thinking that they do any tapering in September, but I’m not sure where their heads are all at. If it’s up to Powell, he’ll wait till November. But other Fed members seem to be on different pages. “

THOMAS HAYES, MANAGING MEMBER, GREAT HILL CAPITAL LLC, NEW YORK.

“We didn’t get a really high number on CPI. The fact that they came in just below expectations gives the Fed the chance to punt any taper implementation announcement from September to November.”

“The inflation numbers confirmed that the Fed can push it off a little bit more cause there were worries if inflation numbers came in really hot then the Fed’s hand might be forced to move sooner rather than later, in spite of recent employment numbers being weak.”

KATHY BOSTJANCIC, CHIEF US FINANCIAL ECONOMIST, OXFORD ECONOMICS, NEW YORK

“Overall, we’re getting further moderation in the monthly advance in consumer prices, especially at the core level. The core level was little bit softer than we thought, so that’s good news. But the year-on-year rate is only easing slightly. Ongoing supply chain bottlenecks amid strong demand are going to keep the pace of inflation elevated and sticky in the coming months.”

“If these inflation readings continue to moderate, then it will be transitory. It’s just that transitory could be longer than maybe previously expected.”

ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES, NEW YORK

“The CPI has been running less hot than PPI and that’s been true for the last five months. When you look at the month over month number, which is the most important number, there is sequential improvement, which is a very good sign. We’re clearly seeing inflation heading in the right direction. These numbers are still elevated for historic norms but the sequential trend is still improving and that’s a good sign.”

(Compliled by the global Finance & Markets Breaking News team)