US Inflation Latest
US inflation has edged up to 2.9 per cent in August, leaving the Federal Reserve with a difficult decision to make on interest rates next week. The Bureau of Labor Statistics said on Thursday that the annual consumer price index (CPI) figure for inflation rose higher compared to July, when inflation was 2.7 per cent.
What the Numbers Mean
The latest reading matched consensus forecast. Core inflation stayed at 3.1 per cent, which was also in line with expectations. Traders widely expect the Fed to cut interest rates by 25 basis points next week in what will be one of the most closely watched interest rate decisions in Federal Reserve history.
Global Economy Impact
The Fed’s rate is crucial for the global economy given the size of US spending and the collateral effects borrowing costs can have on major powers, with higher bond yields on the US Treasury hitting markets in Europe and Asia. Lindsay James, investment strategist at Quilter, said fresh data was not a shock and made an interest rate cut next week “near certain”.
Economic Forces at Play
James said: “It remains hard to discern that tariffs are having a broad impact on the level of prices and how much of it is other economic forces playing out at the same time.” He added: “What is clear is that corporates are still having to digest the multiple and ongoing changes to tariffs and as such some of that will be absorbed by the companies themselves, while some may pass on price rises when the time is right and the environment is more predictable.”
Sticky Inflation Tests Central Banks
Minutes before US inflation data was revealed, the European Central Bank opted to hold interest rates on deposits at two per cent. Economists said future cuts may yet come but the outlook on growth and inflation remained stable. Thomas Pugh, chief economist at the consultancy firm RSM, warned: “The big risk is the impact that US tariffs and associated uncertainty will have on the eurozone.”
UK Interest Rates
The Bank of England will make its own decision on interest rates next week, a day after the Fed. Inflation in the UK has been stickier than in other developed economies, with markets believing monetary policymakers will keep interest rates at four per cent for the rest of this year.
Conclusion
In conclusion, US inflation has risen to 2.9 per cent, making it likely that the Federal Reserve will cut interest rates by 25 basis points next week. The decision will have a significant impact on the global economy, and central banks around the world will be watching closely. With sticky inflation testing central banks, it remains to be seen how they will respond to the changing economic landscape.
