Inflation defies expectations and rises in August, paving the way for a possible Fed increase

U.S. inflation was more stable than expected in August, likely prompting the Federal Reserve to continue with its third consecutive 75-basis-point interest rate hike.

The consumer price index rose 0.1% from July, after being flat in the previous month, Labor Department data showed on Tuesday. From a year earlier, prices were up 8.3%, down slightly.

The so-called Core CPI, which excludes more volatile food and energy ingredients, rose 0.6% from July and 6.3% from a year ago. All measures are included in the above forecast. Shelter, food and medical care were the biggest contributors to price growth.

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The rise in inflation shows that the cost of living for Americans is unbelievably high, even though there has been some relief from the gas pump. Price pressures remain elevated and historically prevalent, suggesting a long road ahead towards the Fed’s inflation target.

Chairman Jerome Powell last week said the central bank would act “straight“To achieve price stability and some policymakers voice support for one of the biggest rate hikes in history. Officials have said their decision next week will be based on the “overall” of the economic data they have on hand, which also illustrates strong labor market and weakened spending and consuming.

According to the data, Treasury yields rose sharply, while S&P 500 futures fell and the dollar rose. Traders have ramped up their bets that the Fed will raise rates by 3/4 of a percentage point, now seeing such an outcome as locked in.

Ahead of the report, several Wall Street forecasters included Evercore ISI and Deutsche Bank AG raised their prediction to call for a 75 basis point move.

Persistently high inflation has dragged down President Joe Biden’s approval ratings and threatened Democrats’ chances of maintaining their slim congressional majority in the November midterm elections. Biden, In a White House ceremony later on Tuesday, plans to argue that he and Democrats helped propel the economy back to a stronger position when they touted a new law on climate, energy and health care is called the “Inflation Reduction Act”.

Food and gas

Food costs rose 11.4% from a year ago, the highest since 1979. Electricity prices are up 15.8% from 2021, the highest since 1981.

Meanwhile, gasoline prices fell 10.6% in August, the biggest monthly drop in more than two years.

The cost of accommodation – the largest service component and accounts for about a third of the total CPI – continues to rise. Total housing costs rose 0.7% from July and 6.2% from a year ago, both the highest since the early 1990s.

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