US inflation rose to 3.7% in August, driven by a sharp increase in energy prices and higher costs for rent.
The US inflation rate was 3.7% over the 12 months to August, the Labor Department said - up from 3.2% in July.
The year-over-year increase was slightly higher than economist forecasts of a 3.6% annual jump.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The price of energy commodities, including gas and oil, jumped up 10.5% over the last month.
Will the Fed raise interest rates?
Despite the surprise inflation rise, analysts do not expect the figures to complicate matters for the Federal Reserve as policymakers tend to focus on core inflation numbers, which strip out volatile food and energy prices.
“Inflation data from the US yesterday was mixed but there wasn’t anything in there to cause major alarm for either investors or the Federal Reserve, even if energy prices are starting to become a relevant inflationary pressure again,” says Russ Mould, AJ Bell’s investment director.
On a core basis, prices in August climbed 4.3% over last year — a slowdown from the 4.7% annual increase seen in July.
Within core inflation, rent prices surged. The index for rent and owners' equivalent rose 0.5% and 0.4% on a monthly basis, respectively. Owners' equivalent rent is the hypothetical rent a homeowner would pay.
"If you look at what’s going on underneath the surface, core inflation continues to gradually cool," says David Kelly, chief global strategist for J.P. Morgan Asset Management. "I don’t think people should look at it as some kind of revival of inflation pressure."
The data is unlikely to make the Federal Reserve raise interest rates at its next meeting but it could push it to act later in the year, says Jeffrey Cleveland, chief economist at Payden & Rygel.
Seema Shah, chief global strategist at Principal Asset Management, believes one more rate hike is still possible before the end of the year.
"The inflation print likely is not enough to tilt next week’s Fed call towards a hike, yet it also hasn’t entirely cleared up the question of a November pause vs. hike,” she says.
What is the current interest rate in the US?
The Fed has already raised its benchmark interest rate to the highest level in 22 years, targeting a range of 5.25% to 5.5%.
The Fed rate is a range because the Federal Reserve cannot mandate a set number.
Fed chairman Jerome Powell warned last August that inflation remained “too high".
"We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective," he said.
Like the Bank of England, the US Federal Reserve has a mandate to keep inflation at 2%.
The US central bank will meet to decide whether to or not to keep the rates unchanged at its September 20th policy meeting.
-
Christmas at Chatsworth: review of The Cavendish Hotel at BaslowMoneyWeek Travel Matthew Partridge gets into the festive spirit at The Cavendish Hotel at Baslow and the Christmas market at Chatsworth
-
Tycoon Truong My Lan on death row over world’s biggest bank fraudProperty tycoon Truong My Lan has been found guilty of a corruption scandal that dwarfs Malaysia’s 1MDB fraud and Sam Bankman-Fried’s crypto scam
-
Do we need central banks, or is it time to privatise money?Analysis Free banking is one alternative to central banks, but would switching to a radical new system be worth the risk?
-
Will turmoil in the Middle East trigger inflation?The risk of an escalating Middle East crisis continues to rise. Markets appear to be dismissing the prospect. Here's how investors can protect themselves.
-
The Bank of England can’t afford to hike interest rates againWith inflation falling, the cost of borrowing rising and the economy heading into an election year, the Bank of England can’t afford to increase interest rates again.
-
Interest rates held at 5.25% againThe Bank of England has kept rates at 5.25% again, in a widely anticipated move. We look at what it means for your money - and what the Bank’s next move could be
