Inflation concerns in the US are creeping up again, raising doubts about the expected ease in consumer price increases later this year.
August witnessed a surprising increase in underlying US inflation, potentially paving the way for further interest-rate hikes by the Fed. The Bureau of Labor Statistics revealed that the core consumer price index, which excludes food and energy costs, saw a 0.3% increase from July, marking its first acceleration since February. Year-on-year, it rose by 4.3%, aligning with estimates and marking the smallest uptick in nearly two years.
We economists tend to favour the core gauge as a more reliable indicator of underlying inflation compared to the overall CPI. Core rose 0.6% from August making it the highest in over a year, this can be largely accounted for by the increase in gas prices.
Today’s data adds to the growing concerns that the rebounding economy is reigniting inflationary pressures. While Fed officials have expressed increasing confidence in their ability to curb inflation without triggering a recession, a resurgence in price growth might compel them to raise interest rates even further, potentially risking an economic downturn in the process.
As the Federal Reserve approaches its next meeting, the CPI serves as one of the last significant reports for consideration. Markets anticipate that policymakers will maintain current rates. However, Chair Powell cautioned last month that interest rates would remain elevated, with the possibility of further increases if the economy and inflation don’t subside.
Amidst this, Treasury yields and stock futures experienced small fluctuations, but were largely unaffected with expectations leaning towards the Fed holding rates steady next week, while markets price in a 50% probability of a hike in November.