US inflation ticks up in August over higher petrol prices

Underlying measures show signs of a cooling economy

Traders largely anticipate that the Fed will leave interest rates unchanged when it meets next week. AFP
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US inflation rose last month due to rising petrol costs, but underlying inflationary measures showed signs of a cooling economy.

The Consumer Price Index (CPI) rose 0.6 per cent last month after increasing 0.2 per cent in July, and increased 3.7 per cent on an annual basis, the Labour Department reported on Wednesday, in line with economists' expectations.

Core CPI – which excludes gasoline and food – rose 0.3 per cent last month, slightly hotter than expectations of 0.2 per cent. Still, it cooled on an annual basis. Year-on-year, core CPI rose 4.3 per cent, down from 4.7 per cent in July.

The gasoline index accounted for more than half of the monthly all-items increase, the Labour Department reported. The average gas price in the US rose to $3.848 on Wednesday, according to motorgroup AAA.

The latest data also increases hopes that the Fed can achieve a so-called soft landing, in which economic growth slows without being driven into a recession.

Recent government reports show that the economy is also trending to where the Federal Reserve wants it to go, as inflation continues to cool and the labour market shows signs of softening.

While recent economic data has shown that inflation has eased in the US, it still remains at a too-high level for the Fed's long-term 2 per cent goal. Policymakers have indicated that they would likely keep rates elevated for some time.

The probability of the US economy slipping into recession has declined further, as encouraging inflation and job market trends bode well for the world's biggest economy, Goldman Sachs said in a report earlier this month.

The chances of an economic contraction in the US have dropped to 15 per cent over the 12-month period, down from a previous estimate of 20 per cent, according to the investment bank.

The US, the world's largest economy, is forecast to grow 1.8 per cent in 2023, instead of 1.6 per cent as previously projected by the International Monetary Fund. Its economy is projected to expand 1 per cent in 2024.

Traders largely anticipate that the Fed will leave interest rates unchanged when it meets next week. The central bank has raised US interest rates to the target range of 5.25 and 5.50 per cent since March of last year.

The Fed is not expected to cut interest rates until June 2024, data from the CME Group showed.

Updated: September 14, 2023, 8:02 AM