The US Bureau of Labor Statistics has published its latest consumer price index (CPI), reporting a 0.6 per cent increase (seasonally adjusted) in August, up from 0.2 per cent in July.
Over the 12 months to August 2023, headline inflation grew 3.7 per cent, slightly above market expectations of 3.6 per cent, and up from 3.2 per cent in the year to July.
Core inflation (excluding food and energy) rose 0.3 per cent in August, exceeding market expectations of a 0.2 per cent rise.
However, in annualised terms, core inflation was in line with market expectations at 4.3 per cent – the lowest reading since September 2021.
According to NAB economist Tapas Strickland, the mixed August print is unlikely to alter the Federal Reserve’s outlook, which leaves the door open for one final hike to the funds rate before it declares victory on the war against inflation.
“Nothing then to dissuade the Fed that they are likely close to the end of the hiking cycle but will still likely be wary about prematurely declaring inflation has slowed sufficiently given the headfakes in 2021 and 2022 which saw inflation reaccelerate after a couple of soft prints,” Mr Strickland observed.
ING’s chief international economist, James Knightley, agreed, adding expectations for higher fuel prices would stoke fears of a future inflation flare-up.
“Today’s report should ensure that officials keep one further hike in their dot plot forecast for the end of this year,” he observed.
However, Mr Knightley said he continues to expect the Fed to keep rates on hold at the upcoming Federal Open Market Committee (FOMC) meeting and does not anticipate further hikes in this current tightening cycle.
“The Fed will still keep rates on hold in September but it means officials will almost certainly keep one final hike in their official forecasts, even though we don’t think they will carry through with it,” he noted.
The Fed lifted its funds rate to 5.25–5.5 per cent following its FOMC meeting in July.
In minutes released following the decision, FOMC members noted inflation remain elevated, employment conditions were “robust”, and the economy was expanding, albeit “moderately”.
However, the Fed acknowledged tighter credit conditions for households and businesses would “weigh on economic activity, hiring, and inflation”.
“In assessing the appropriate stance of monetary policy, the committee will continue to monitor the implications of incoming information for the economic outlook,” the minutes read.
“The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals.
“The committee’s assessments will take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.”