Inflation Market News in the United States

The latest inflation market news in the United States is a mixed bag. It includes August’s Consumer prices, the Fed’s interest rate decision, and OPEC’s deal to cut oil output. The report also covers expectations for future inflation. Despite this mixed bag, traders see a one in three chance that the Fed will hike interest rates by a full percentage point next week.

Consumer prices for August

The Consumer Price Index (CPI) showed that prices for core goods and services increased 0.1% in August after essentially staying flat in July. The slowdown was largely due to a drop in gasoline prices, which fell 10.6% last month. Gasoline costs reached nearly $5 per gallon in June, but fell to $3.83 by August’s end. Despite the drop in gasoline prices, core inflation was still 0.4% higher than expected.

Housing and rent increased by 0.7% last month. These increases are a cause for concern for the Federal Reserve, which is increasing interest rates to control inflation and cool the economy. The Fed’s next rate increase is widely expected to be three-quarter percentage points, or 75 basis points, but the Fed may have to raise rates more aggressively if inflation continues to outpace the economy.

The consumer price index for August in the United States shows that prices are continuing to rise despite a tight labor market. However, the growth was moderate compared to July, with food costs increasing by 0.7%. Overall, the core CPI is up 6.3% over the last 12 months, compared to 5.9% in July.

Fed’s interest rate decision

The latest news about inflation in the United States isn’t good. Consumer prices are still rising, but at a slower pace than in the past. The Federal Reserve has said it will raise interest rates again on September 21. But the upcoming data may change the Fed’s calculus. This week, we will see August consumer and producer price indexes and retail sales figures. If these numbers continue to rise, we can expect to see more hikes by the Federal Reserve.

While the headline rate of inflation has slowed, it remains at levels unheard of in the past four decades. These figures are adding to the headwinds facing the Biden administration. The Fed is also grappling with the prospect of raising interest rates again, which could hurt the economy. When news of the upcoming interest rate hike broke, investors sold off gold and stocks.

Earlier this week, the Labor Department reported that core inflation in August was 7.4%, well above the Federal Reserve’s target of 2%. Those figures sparked expectations of a third straight hike later this month. However, the Fed is also keeping an eye on inflation in the coming months. Inflation is a big concern for policymakers because it directly impacts the lives of most Americans.

OPEC agreement to cut oil output

OPEC has made it clear that they are ready to slash oil output to stabilize the world’s energy markets. However, it’s unclear what the exact terms of the agreement are, and how the cuts will affect the United States. The OPEC cuts are meant to help lower prices in lower and middle-income countries, which have already been hit by the high price of energy. The cuts will be voluntary, but it’s unclear how much will be reduced.

The oil price has fallen dramatically since last spring, after the United Kingdom asked Saudi Arabia and the United Arab Emirates to increase production. As a result, the price of crude oil crashed because there weren’t enough buyers. However, producers were willing to pay people to buy their oil. Ultimately, the move to cut production was widely seen as a tactic by Saudi Arabia to support oil prices. Oil prices peaked over $120 a barrel in the spring but then began to fall as concerns about the global economy became increasingly acute. By the end of September, they were trading at less than $90 a barrel.

This could have an impact on US gasoline prices. Prices have already started to creep higher in the US, and the OPEC agreement to cut oil output could add to inflation, which could raise the pressure on the Federal Reserve to raise interest rates. The cut is likely to have a limited impact on gas prices, though, because many smaller OPEC producers were already struggling to meet their previous production targets.

Expectations for future inflation

The expectations of consumers are a powerful tool for forecasting inflation. The January 2022 Survey of Consumers conducted by the University of Michigan showed that consumers expected inflation to reach 4.9 percent in the next year. However, the preliminary February results indicate that consumers expect inflation to rise to 5 percent, or higher.

There are several ways to measure expectations for future inflation. The Fed’s Survey of Professional Forecasters (SPF) is one source. This survey asks economic forecasters to provide forecasts for inflation over one, five, and ten years. The median estimates of these forecasts are displayed in a chart. The one-year forecast corresponds to the year after the date on the axis, while the 10-year forecasts represent the corresponding average rate over ten years.

Another indicator of expectations is the difference between nominal and inflation-indexed bonds. The SPF forecasts have the highest accuracy, though the Michigan survey has flaws. In the last decade, the survey has consistently over-predicted inflation by about 0.8 percentage points. The other indicator is the bond yield-based index, which is volatile and heavily influenced by financial market conditions.

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