Morning Brief – Fuel for the fire

Charles Porter
Thu 14 Sep 2023

Fuel for the fire

An upside inflation miss in the United States has certainly not helped allay many developing nations’ concerns about a strong US Dollar. CPI inflation registered in the United States at 3.7% for the month of August. That compares with a 3.2% July figure which was clearly much closer to the Fed’s 2% target. The uptick in inflation has not had the markets flocking out of risk assets in droves as it might have theoretically done. Digestion of the rising headline inflation statistic was relatively calm as statisticians knew that due to the expiration of several base effect that were supporting a lower July figure, the August inflation read would be elevated.

Accordingly, the consensus for yesterday’s US CPI inflation read was for 3.6% year on year inflation. Core inflation remained more resilient at 4.3% in line with consensus forecasts and down from 4.7% in the prior month. As was expected, the rise in petroleum and gasoline prices observed at the pumps brought a wave of cost push inflation to the US consumer. A similar effect is expected to be observed within other nations’ inflation statistics, not least here in the UK. Inflation data is due to be read in the UK next Wednesday one day prior to the Bank of England decision. 

So far, the above-target inflation read yesterday for the US has led the market to the conclusion that one final rate hike is plausible later on this year. Should the UK’s inflation read also be threatened by rising petrol prices then it is highly likely that the Bank of England could use this data to justify further hikes, at least in principle. To qualify yesterday’s US data, PPI and retail sales data will be observed this afternoon. This data will prove to be the filling in the ECB’s decision and subsequent press conference sandwich with volatility to be expected as we approach the afternoon trading session.  

Discussion and Analysis by Charles Porter

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