The US inflation rate was higher than expected in August, keeping pressure on the Federal Reserve for a big interest rate hike this month.
The consumer price index rose 0.1 percent for the month, above economists’ expectations for a 0.1 percent drop, as falling energy costs failed to fully offset the increase in services and other categories of expenditure.
The figures, released by the Bureau of Labor Statistics, also contrasted with July, when prices did not rise compared to the previous month.
On an annual basis, headline inflation stood at 8.3%, down from 8.5% in July, but still close to a four-decade high. Economists had expected a reading of 8.1%.
Financial markets reversed course after higher-than-expected inflation numbers. S&P 500 futures indicated Wall Street’s benchmark index would open 2.4% lower on Tuesday morning, after rising 0.7% before the data was released.
In government debt markets, the 2-year U.S. Treasury yield, which is more sensitive to changes in interest rate expectations, edged up 0.13 percentage points to 3.70%, after ‘having quoted at 3.52% before.
“We really don’t see anything here that would make the Fed want to opt for a slower pace of rate hikes this month,” said Brian Coulton, chief economist at Fitch Ratings.
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The surprising jump came despite petrol prices having fallen in recent months. Earlier this summer, they surpassed a record $5 a gallon earlier this summer after a jump in oil prices following Russia’s full-scale invasion of Ukraine. The current national average is $3.70, according to the American Automobile Association.
However, after removing energy and food prices, the core CPI rose even more. Between July and August, it increased by 0.6%, which translated into an annual increase of 6.3%. This represents an increase of 5.9 percent recorded during the previous period.
The latest CPI report is the last major data release ahead of the US central bank’s next policy meeting, at which officials are expected to implement a third straight hike of 0.75 percentage points .
This will raise the federal funds rate to a new target range of 3% to 3.25%. By the end of the year, futures markets suggest the benchmark benchmark rate will be between 3.75% and 4%.
Gasoline prices fell 10.6% in August, leading to a 5% drop in global energy prices. Airline ticket prices fell 4.6%, after falling 7.8% in July, while used car prices also fell.
However, a 0.7 percent increase in housing-related costs offset those declines. Interannually, they have increased by 6.2%. Food prices rose 0.8%, following a 1.1% jump in July, for an annual increase of 11.4%.
Due to higher prices in the transportation services and health care sectors, non-energy services inflation rose 0.6%, or 6.1% higher than a year earlier. ‘last year.
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In recent weeks, Fed policymakers have reaffirmed their commitment to controlling inflation, emphasizing the risks associated with allowing price pressures to persist.
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Last week, Chairman Jay Powell and Vice Chairman Lael Brainard warned that not bringing inflation down and allowing expectations of future price increases to spiral would likely mean more economic pain down the road.
As gasoline prices have fallen, so have expectations about future inflation. Data released Monday by the Fed’s New York branch showed households now expect inflation to settle at 5.7% a year from now, down from 6.2%.
Policymakers fear this downward trend will not continue, however, especially if energy prices rise later this year. Treasury Secretary Janet Yellen warned of that possibility over the weekend, citing concerns about widespread shortages in Europe as the bloc stops buying oil from Russia.
Christopher Waller, a governor who serves on the Federal Open Market Committee, said Friday that he supported “another significant increase” in the policy benchmark rate at the September meeting. He noted that the resilience of the US economy and the strength of the labor market gave the Fed “the flexibility to be aggressive” in its fight against inflation.
US President Joe Biden is expected to host an event at the White House on Tuesday afternoon to celebrate the passage of the Inflation Reduction Act, a package of measures passed by Congress in August that it includes incentives for clean energy and some higher taxes on the rich and elderly. companies While economists do not believe the legislation will have an immediate effect on inflation, it could ease price pressures in the long run.
High inflation has dogged the economic recovery for months, giving Republicans an advantage heading into November’s midterm elections.