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U.S. inflation stronger than expected In August, the Fed is likely to raise rates for the third time in a row by 75 basis points. Data from the Labor Department on Tuesday showed that the consumer price index rose 0.1% from July, unchanged from the previous month. Compared to the same period last year, prices rose by 8.3%, a slight deceleration.
The so-called core CPI, which strips out the volatile food and energy components, rose 0.6% from July and 6.3% from a year earlier. All measures were higher than expected. Housing, food and healthcare were the biggest contributors to price growth.
Inflation point to accelerate Despite the relief at gas stations, the cost of living for Americans remains high. Price pressures remain historically high and widespread, suggesting the Fed has a long way to go to achieve its inflation target.
Chairman Jerome Powell Last week, the central bank said it would act “straightforwardly” to achieve price stability, with some policymakers expressing support for another historic rate hike. Officials said their decision next week would be based on the “overall” economic data they had on hand, which also pointed to a strong labor market and weak consumer spending.
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U.S. Treasury yields surged after the data, while S&P 500 futures fell and the dollar rose. Traders have ramped up bets that the Fed will raise rates by three-quarters of a percentage point, now seeing that outcome locked in.
Ahead of the report, several Wall Street forecasters, including Evercore ISI and Deutsche Bank, raised their forecasts, calling for a 75 basis point cut in rates.
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Continued high inflation has weighed on President Joe Biden’s approval ratings and threatens Democrats’ chances of maintaining their narrow congressional majority in November’s midterm elections. At a White House ceremony later Tuesday, Biden plans to argue that he and his fellow Democrats have helped in touting a sweeping new climate, energy and health care law dubbed the “Reduction in Inflation Act.” The economy is back on its feet.
Food and Gas
Food costs rose 11.4% from a year ago, the highest since 1979. Electricity prices rose 15.8% from 2021, the highest since 1981.
Meanwhile, gasoline prices fell 10.6% in August, the biggest monthly drop in more than two years.
Housing costs – the largest services component, accounting for about one-third of the overall CPI index – continued to rise. Overall housing costs rose 0.7% from July and 6.2% from a year earlier, both the highest levels since the early 1990s.
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