Inflation in the US has risen sharply, exceeding forecasts

For the second consecutive month, the US experienced an increase in annual inflation, surpassing predictions.

In spite of this, core inflation is still decreasing.

The dollar index experienced fluctuations due to the release of mixed data.

On Wednesday, September 13, the US Department of Labor released a report indicating that the consumer price index (CPI) in the US rose by 0.6% in August, which was in line with expectations.

Consumer prices in August rose by 3.7% compared to the same month last year, which was higher than the expected growth rate of 3.6% y/y. This marks the second consecutive month of inflation growth in the US after 12 months of decline, with the growth rate in the last month increasing by 2.5 times to 0.5%.

According to the FxPro analyst team, the price increase is more than half attributed to a 10.6% surge in gasoline prices. Since the end of August, oil exchange prices have been at multi-month highs, which could be a cause for concern for the monetary authorities in the upcoming months.

In August, the Core Consumer Price Index (Core CPI) - not including volatile food and energy prices - increased by 0.3%, surpassing the predicted 0.2% month-over-month growth. The yearly growth rate of Core CPI decreased by 0.4%, coming in at 4.3% year-over-year, which was in line with expectations.

Despite the economic slowdown, FxPro has observed that the annual growth rate of core inflation is still high. In the past six months, Core CPI has increased by 1.8%, which is double the average annual rate of the 10 years prior to the pandemic.

Core inflation rose by a mere 0.1% in the month, making it highly unlikely that the Federal Reserve will raise rates this month. Nevertheless, the unexpected increase in annual inflation could mean that the Fed will continue to raise rates until the end of the year, according to the Independent Advisor Alliance.

Commerzbank predicts that the Federal Reserve will likely pause in increasing rates next week, but will be closely monitoring further price movements.

CIBC predicts that the dollar will remain strong for a while due to a decrease in risk sentiment among investors and discrepancies in the forecasts of central bank policy for 2024.

According to the FxPro analyst team, the most recent release has only strengthened the market's conviction that the Federal Reserve is finished with rate hikes. The probability of the rate staying the same in November has increased to 57%, up from 53% a week ago, which does not match the recent inflation data that has been higher.