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US headline inflation expected to have risen in August

US headline inflation expected to have risen in August


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The headline rate of inflation in the US is forecast to have risen in August, but falling “core” inflation should support expectations that the Federal Reserve will hold interest rates steady at next week’s meeting.

Economists surveyed by Bloomberg predicted consumer prices rose 3.6 per cent year on year, up from 3.2 per cent in July. On a monthly basis, prices are forecast to have risen 0.6 per cent. 

However, the increase will be driven in large part by a jump in petrol prices. Core inflation, which strips out volatile food and energy costs, is expected to remain steady at a month-on-month rate of 0.2 per cent. That would bring the year-on-year number to 4.3 per cent, down from 4.7 per cent in July.

The Bureau of Labor Statistics will publish its latest official figures at 8.30 Eastern Time on Wednesday.

The Fed has lifted interest rates 11 times since March 2022 in an attempt to bring inflation back towards its 2 per cent target. 

Policymakers tend to focus on core inflation numbers, but a higher headline figure still highlights the challenges facing the Fed as it impacts consumers’ and businesses’ expectations about future price rises. Higher petrol prices in particular are also politically sensitive.

Still, a further decrease in the core number is likely to reassure officials at the US central bank, following several other recent data releases that also suggested underlying inflation pressures are trending lower.

Labour market figures released earlier this month showed weaker-than-expected wage growth and an uptick in the unemployment rate, while separate numbers on job vacancies showed a sharper-than-expected decline. Wages are an important factor in inflation, particularly in the service sector.

Officials have been keen to stress that they have not finished their mission to quell inflation and could yet tighten monetary policy further, but the Fed is widely expected to keep rates steady at least through its next meeting on September 19-20. 

Several senior officials have signalled their support for a pause, with Dallas Fed president Lorie Logan remarking last week that “returning inflation to 2 per cent will require a carefully calibrated approach — not endless buckets of cold water”.

Investors are more divided on the outlook for the rest of the year, however, with futures markets suggesting an almost even split on whether there will be one more rate rise in November or December.


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