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.
-
Which UK region has the most in savings? Average savings by areaThe amount people have in their savings differs from region to region in the UK. How does your nest egg compare to those living nearby?
-
Doug and Mary Perkins: Specsavers’ clear-sighted foundersHelped by the deregulation of the sector in the 1980s and brilliant advertising, Mary Perkins and her husband Doug have taken Specsavers to the top of the optometry market
-
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.
-
What Jay Powell's Jackson Hole message means for marketsNews Jay Powell delivered a hawkish speech on inflation at last week's Jackson Hole meeting. Alex Rankine explains what his speech means for markets.
-
Are interest rates set to go higher than anyone thinks possible?Opinion With inflation raging at 10% or more, central banks may have to raise interest rates to similar levels to keep it under control. But have they got the bottle to do that, asks Dominic Frisby?
-
How not to get beaten by inflationEditor's letter With inflation at 9%, and the bank rate at 1% you’re not going to get a real return on cash. But there are steps you can take to beat inflation, says Merryn Somerset Webb.
-
The inflation scare will fade – here’s whyAnalysis Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and the UK may avoid recession. Here’s why.
-
How to invest in an environment of rising inflation and unpredictable central bank policyEditor's letter This week central banker Lael Brainard - a long-term dove - rattled markets by suggesting America's Federal Reserve will unwind quantitative easing faster than expected. John Stepek explains what is going on.
-
Central banks change their tune on inflationNews With prices rising at 7.9% in the US and 6.2% in the UK, and global commodity prices surging, central banks around the world are being forced into inflation-fighting mode.
