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The Consumer Price Index (CPI) for the United States rose 0.4% in September, up from 0.1% in August and slightly down year on year to 8.2%, though a bit higher than expectations of 8.1%.
Core inflation, the index for all items less food and energy, also rose 0.6 percent in September, as it did in August. That’s at 6.6% now, up from 6.3% last month.
Attention will now turn to the Federal Reserve Banks which holds a meeting in three weeks where the committee will decide whether to increase interest rates beyond 3.25%, their highest level since 2008.
Markets expect a hike to 4%, with any speculation about a pivot crushed by the OPEC+ decision to cut oil production by a far bigger than expected two million barrels.
Oil is a bit up today by 0.59% to $93 for Brent, maintaining very high levels compared to $60 in 2019.
The hike in interest rates has been very effective in reducing those oil prices, and thus however much OPEC might want to fight the fed, the oil markets will probably send the price down.
China may also be significantly affected by a hike to 4% as it may suck out more foreign investment and liquidity.
Their state media continues to criticize the Fed, but they’ve said nothing about this OPEC decision even though interests align economically, and so no one will have any sympathy for their opinion.
Plenty may wonder however whether interest rates are the appropriate tool to use, but they are one of a few tools, including the release of some 10 million oil barrels from the strategic reserves, in addition to significant investments in renewables with the Green Deal.
In Europe, Russia is now seemingly concerned about their energy problem, namely losing the world’s biggest market.
They’ve offered to bring back Nord Stream 2, but no one has yet heard an offer to withdraw all troops from Ukraine, and so Germany said nein.
Where the economy is concerned UK is still growing year on year at 2% for August. Europe’s Q3 may also show growth year on year.
It may well be therefore the economy can still just about handle 4% interest rates, especially if inflation does start developing a clear downtrend this Autumn.
