US Consumer Prices Rise Unexpectedly, Prompting Inflation Concerns for Policymakers
Consumer prices in the US surged unexpectedly last month, mainly due to higher rent and fuel costs, as reported by the Labor Department. The inflation rate, measuring the pace of price increases, hit 3.7% over the 12 months ending in August, up from July’s 3.2%.
These figures highlight the challenges facing policymakers in stabilising prices after last year’s rapid inflation.
While the inflation rate has eased from its peak, experts believe the US central bank, which targets 2% inflation, remains concerned. The central bank has already raised its benchmark interest rate to 5.25% to 5.5% to curb inflation and is set to meet this month to consider further increases.
Fuel prices were the primary driver of the consumer price jump from July to August, with a monthly inflation rate of 0.6%, the highest since June 2022. Even excluding volatile food and fuel prices, costs still rose by 0.3%, surpassing expectations.
Housing expenses, a major component of the US consumer price index, continued to rise for the 40th consecutive month, defying expectations of cooling.
The Federal Reserve is unlikely to raise interest rates at its upcoming meeting, given that such rate hikes have limited impact on fuel prices, the key driver of August’s inflation surge.
However, Wednesday’s data may prompt future action. Charles Hepworth, investment director at GAM Investments, noted that the figures “won’t reassure the Federal Reserve that the necessary economic cooling is happening as quickly as they desire.” He suggested a November rate hike remains possible.
Higher interest rates aim to cool the economy by encouraging saving and making borrowing more challenging. In theory, this slowdown should alleviate price increases.
Federal Reserve Chairman Jerome Powell cautioned last month that inflation remains “too high.” He pledged to raise rates further if necessary to ensure inflation moves sustainably towards the 2% target.
