Hot Inflation Figures Could Spark 75-Point Interest Hike

• Hotter-than-forecast inflation figures suggest another 75 basis point interest rate hike may be on the table for November.
• Fed chair Jerome Powell has already hiked interest rates significantly this year. 
• The Fed has hiked interest rates quicker than the Bank of England, sending them from near zero to around three percent in around six months.

US inflation climbed higher than expected on a monthly basis in September in a sign the Federal Reserve’s series of steep rate hikes are failing to tame the toughest price pressures.

Inflation hit 0.4 percent last month, above Wall Street’s expectations of a 0.2 percent increase and higher than August’s print, figures from the US Labour Department showed.

On an annual basis, prices climbed 8.2 percent, down slightly from August.

The hotter-than-forecast figures indicate Fed chair Jerome Powell and co’s three successive 75 basis point rate rises are failing to materially impact rising prices.

Last night, minutes from the Fed’s latest meeting indicated the world’s most influential central bank will stick to the pace of rapid policy tightening, meaning a fourth 75 basis point rise in a row could land in early November.

The Fed has hiked interest rates quicker than the Bank of England, sending them from near zero to around three percent in around six months.

The Bank has stuck to 50 basis point rises, sending borrowing costs to 2.25 percent.

However, turmoil in UK financial markets since the government’s mini budget has raised the prospect of the Bank launching a full percentage point rate hike at its next meeting on 3 November. 

That would be the biggest move since the Bank was made independent 25 years ago.

US core inflation, a more accurate measure of underlying price pressures, also came in above Wall Street’s forecasts, hitting 0.6 percent in September.

The prospect of yet more jumbo sized Fed rate hikes will pile even more pressure on the already fragile UK gilt market.

UK rates have trended higher since the start of the year on expectations Powell and co would lift borrowing costs to tame inflation. 

But, prime minister Liz Truss and chancellor Kwasi Kwarteng’s £43bn of tax cuts and short-term borrowing splurge has lit a rocket fuel under yields. 

Today’s figures will put even more upward pressure on UK borrowing costs.

Yields and prices move inversely.

By CityAM

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