The US Labour Department reported that its consumer price index rose marginally by 0.1 per cent in August, on a monthly basis. Expectations were for consumer prices to move lower by 0.1 per cent.
The modest increase in consumer prices came as higher prices for accommodation, food and medical care contributed for an increase, while lower fuel prices contributed to a lower inflation level.
A sharp 10.6 per cent decline in vehicles’ fuel prices contributed to a 5.0 per cent slump in energy prices, while food prices increased by 0.8 per cent. Accommodation and medical care prices rose by 0.7 per cent and 0.8 per cent respectively.
Paul Ashworth, chief US economist at Capital Economics, said that the faster-than-expected core price increase “confirms” that the Federal Reserve will raise interest rates by at least 75 basis points during the next meeting, aiming to slow down inflation down towards the Fed’s two per cent target.
The Federal Reserve raised the target range for the fed funds rate by 75bps to 2.25%-2.5% during its July 2022 meeting, the fourth consecutive rate hike, and pushing borrowing costs to the highest level since 2019.
In the meantime, data published by Eurostat, on Wednesday, revealed that the July’s eurozone industrial production dropped more than anticipated. The rate of slowdown was deeper than economists’ expectations of -1.0 per cent, as industrial output declined by an increased rate of 2.3 per cent from June, when production was up 1.1 per cent.
The main contributors to this monthly decline were a 4.2 per cent reduction in capital goods output and a 1.6 per cent decline in durable consumer goods production. Furthermore, production of intermediate goods was also down 0.8 per cent.
On the positive side, non-durable consumer goods production increased by 1.2 per cent and energy output grew 0.4 percent. Meanwhile, on an annual basis, industrial production unexpectedly declined by 2.4 per cent in July, reversing a 2.2 per cent increase in June, well below an expected 0.4 per cent increase.
The EU27 industrial production declined by 1.6 per cent on a monthly basis in July and by 0.8 per cent on an annual basis. Overall, this shows that industrial production is slowing more than expected.
Finally, a fall in UK fuel prices lead to a marginal fall in UK’s headline inflation, from the then prevailing 40-year high level. In August, consumer price inflation unexpectedly declined to 9.9 per cent, from 10.1 per cent in July, below forecast of rise to 10.2 per cent.
This was its first drop since September 2021. As expected, core inflation, which excludes energy, food, alcoholic beverages and tobacco, rose to 6.3 per cent in August, slightly up by 0.1 per cent from 6.2 per cent in the previous month.
Cheaper fuel prices made the largest downward contribution to annual inflation, while higher food prices made the largest upward movement. ING economist James Smith stated that, despite the economic slowdown, overall inflation is forecast to trend around 11 per cent into early next year before falling back more dramatically.
This article has been prepared by Bank of Valletta plc for general information purposes only.