Breaking: US inflation (CPI) spikes, putting pressure on the Fed

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on Sep 13, 2023
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  • US inflation continued rising in August as energy prices jumped.
  • The headline consumer price index (CPI) jumped to 3.7% in August.
  • Core consumer inflation dropped slightly to 4.3%.

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US inflation remained steady in August as energy prices jumped, putting pressure on the Federal Reserve to act. Data by the statistics agency showed that the headline consumer price index (CPI) rose for the second straight month.

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It rose from 0.2% in July to 0.6% in August, higher than the median estimate of 0.5%. This increase translated to a year-on-year jump of 3.7%, the highest level in a few months. Inflation stood at 3.2% in July.

Meanwhile, the closely watched core inflation figure rose from 0.2% in July to 0.3% in August. It then dropped from 4.7% to 4.3% on a year-on-year basis. All the YoY numbers remain above the Federal Reserve target of 2.0%.

Sadly, inflation could continue ticking up for a while now that the crude oil price has jumped to the highest level this year. Brent rose to $92 while WTI, the American benchmark is sitting at $87.

Crude oil is a major part of inflation since its price impacts all products. For example, gasoline price has jumped to over $3.85, raising transportation costs.

These numbers leave the Federal Reserve in a bind. Some Fed officials have supported another 0.25% rate hike in its September meeting while others are leaning towards pausing. As such, the rising inflation data mean that the Fed could decide to hike next week.

The challenge is that some leading numbers are calling for caution as interest rates remain at a two-decade high. For example, data published on Wednesday showed that the average 30-year mortgage rate has risen to 7.27% while mortgage applications have slipped.

Further, delinquencies on credit card, auto loans, and other loans have continued ticking up. This trend could accelerate when millions of Americans start paying their student loans at the end of this month. 

The closely watched CME Fed Tracker tool expects that the Fed will leave rates unchanged between 5.25% and 5.50%. It is unclear whether this will change after today’s inflation numbers.

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