US Inflation Jumps To 3.7% In August Due To Gasoline Price Spike

Despite overall inflation rising, the Bureau of Labor Statistics also reported today (13 September) that core inflation saw another month of steady decline, dipping from 4.7% in July to 4.3% in August.

The rising price of gasoline accounted for over half the bump to inflation, increasing 10.6% throughout the month.

Other energy prices also rose sharply, with the price of fuel oil rising 9.1% in August alone.

The cost of shetler was another key contributor to overall inflation, with the shelter index rising 0.3% in August at an annual rate of 7.3%, marking its 40th consecutive month of increases.

Despite this, the Bureau said: "The indices for lodging away from home, used cars and trucks, and recreation were among those that decreased over the month."

Even with the higher-than-expected inflation figures, markets still give a 97% chance that the Federal Reserve will hold interest rates at their meeting next week (20 September).

Ruffer: 'Gravity' set to reassert itself on financial markets as recession looms

Charles Hepworth, investment director at GAM Investments, said that today's numbers were "unlikely to encourage the Federal Reserve that the necessary cooling in the economy that they are looking for is being achieved as quickly as they want".

Hepworth still maintained that rates would not be hiked this month due to indications from the central bank, but expected a November hike was "likely still in play".

Hussain Mehdi, macro and investment strategist at HSBC Asset Management, agreed, describing the figures as a "disappointment for Fed policymakers".

"The recent uptick in oil prices needs to be monitored and means sequential headline inflation will pick up in the near term," he added, but argued that the squeeze on real income growth will be likely enough to scare the central bank off further tightening.

Hugh Grieves, fund manager on the Premier Miton US Opportunities fund, took a more optimistic view, saying that the Fed will be "relieved" to see a continued decline in core inflation.

However, he still warned that the Fed will worry over the potential for higher energy costs to spread to the wider economy, which could lead to core inflation "reigniting" at the end of the year.

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