US inflation rises to 3.7% as interest cuts ‘not likely’

World News

Inflation in the US rose last month as energy prices soared, according to the latest figures from the Consumer Price Index (CPI) data.

The CPI rate for the 12 months to August 2023 increased to 3.7 percent which is higher than the Federal Reserve’s desired two percent target.

Many financial analysts were hoping for another drop in inflation as it would have likely facilitated an interest rate cut from the central bank.

As it stands, the Federal Funds Rate is sitting at a range of between five to 5.25 percent after a series of rate increases.

Nathaniel Casey, an investment strategist at Evelyn Partners, the wealth management and professional services group, broke down why inflation jumped over this period.

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He explained: “August’s inflation report saw the monthly headline rate jump to 0.6 percent, its highest rate since June 2022.

“Much of this upward pricing pressure came from energy, with the monthly inflation rate for the sector accelerating to 5.6 percent.

“A significant driving factor of this was the recent surge in crude oil, which prompted gasoline prices at the pump to rise during August.

“The index for gasoline was the largest contributor to the monthly all items increase, accounting for over half the increase.”

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However, core inflation, which measures the price of goods and services minus the volatile energy and food industries, actually decreased in August to 4.3 percent.

This is down from 4.7 percent from the month before and is indicative of the impact of energy prices on wider inflation.

Persistent wage growth has also been an issue in exacerbating the issue of inflation with average hourly earnings gaining 4.3 percent in August.

According to the investment strategist, the growth in the US economy means further interest rate hikes from the Federal Reserve could be likely.

Mr Casey added: “With two months of reassuring new data under their belts, the FOMC committee members should feel they have enough evidence of easing inflation and softening labour market conditions to resist hiking at next week’s monetary policy meeting.

“However, with the US economy continuing to expand, it is likely the FOMC will be able to keep rates higher for longer, so rate cuts are likely not yet on the horizon.”

The FOMC is next to announce any further developments in regard to interest rates on September 19-20.

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