The US consumer prices were adding their biggest monthly growth since January raising the Consumer Price Index (CPI) by 0.4 percent on a seasonally adjusted basis, with inflation standing at 2.9 percent/year, and weekly jobless claims spurred the alarm bells among the Federal Reserve policymakers, as it has never risen this high in almost four years, which is the opposite of what was expected of them.
Inflation is also higher than expected, by 0.4% a month
The consumer price index recorded an increase of 0.4% in the month, which is the biggest since January; thus, annual inflation was at 2.9%, increasing by 0.2 percentage points against the previous month and the highest trend since January, as per CNBC. Respective readings of 0.3% and 2.9% were sought by the surveyed economists of Dow Jones.
In the crucial core reading, which omits food and energy, the gain in August was 0.3% leaving the 12-month mark at 3.1% both as anticipated. Fed officials look to core as a more appropriate measure of long-run trends. The inflation target of the central bank is 2%. U.S. Bureau of Labor Statistics reported that the Consumer Price Index of All Urban Consumers (CPI-U) was up 0.4 percent in August, following an increase of 0.2 percent the previous month, which was in July.
The monthly price increases are due to shelter expenses
The much monitored CPI figure had registered the largest increase of 0.4 percent rise in shelter costs; this bears a weighted third by the index. Food prices increased by 0.5 percent, with the increase in energy (1.9 percent in gasoline) by 0.7 percent, probably reflecting the effect of tariffs on prices. The shelter index increased 0.4 percent in August and had the highest contribution to the all-items increase in a month.
There was a 0.5 percent rise in the food index, with the food at home index going up 0.6 percent and the food away from home index going up 0.3 percent. Energy index improved by 0.7 percent in August, with the index of gasoline improving by 1.9 percent. All items excluding food and energy increased 0.3 percent in August, the same increase seen also in July.
Unemployment claims reach a four-year high
The Labor Department said on employment that weekly unemployment compensation claims gave a surprise rise to 263,000, in seasonally adjusted terms, in the week ended Sept. 6, compared with a forecast of 235,000, thus increasing by 27,000 from that of the previous period, which was also revised. The claims level was the highest in close to 4 years. The reports will offer the missing chunks of a complex data puzzle, which will be discussed by central bankers during the two-day policy meeting, which ends Sept. 17.
The stock prices shot up in response to the reports, with traders valuing even higher expectations of interest rate cuts in the future. The jobless claims report has dominated the CPI report of today, wrote Seema Shah, chief global strategist of Principal Asset Management. Although the CPI report is slightly hotter than expected, it will not offer the Fed a rope-a-dope when they declare a reduction in their rates next week.
Expectations of a Federal rate reduction cement
In the markets, there is a 100 percent assurance of a reduction of the benchmark rate of interest that the Fed is currently running between 4.25 and 4.5 percent. Nevertheless, it has had a minor implication that the Fed could opt not to follow its customary quarter percentage adjustment and instead cut by a half point ,given the faltering in the labor market this year and low inflation indicators.
The contradictory economic indicators are putting a multifaceted decision-making environment in the face of Federal Reserve officials who are looking forward to next week’s policy meeting. Inflation is still higher than the target levels, but the drastic rise in the unemployment claims is an indicator that labor market softening can be addressed with intensive monetary policy accommodation to accommodate economic growth.