The inflation print is arguably still high enough to warrant further hikes.
The hotly awaited US CPI report just released for August, showed that inflation came in roughly as expected with the month-on-month increase in CPI at 0.6%, in line with forecasts. Core CPI however, which ironically excludes those ‘core’ items such as food and energy costs, ticked higher to 0.3% from 0.2% last month as rents, insurance and healthcare costs rose and more than offset deflationary impulses elsewhere in the economy. Monthly inflation is invariably quite volatile but this latest print will not encourage the Federal Reserve (Fed) that the necessary cooling in the economy is being achieved as quickly as it wants. CPI on a year view has now ticked up from last month’s lows (as gas prices have recently risen) to stand at 3.7%. Arguably it is still high enough to warrant a few more hikes in policy, although the Fed has already intimated this month that it will not raise and energy prices are beyond its control in any case. Despite this, we should expect that a rate hike in November is likely still in play.
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