US: Inflation pressures are building – ING

James Knightley, chief international economist at ING, points out that the US core (ex-food and energy) consumer price inflation for August has posted the third consecutive 0.3%MoM reading, above the 0.2% figure expected by the market.

Key Quotes

“This has pushed the annual rate up to 2.4%YoY, the highest reading since September 2008 while the 3-month annualised rate is now running at 3.4%. Given the recent acceleration in average hourly wage growth – currently running at a 4.2% annualised rate – the US economy is experiencing is biggest pick-up in inflation pressures since before the global financial crisis.”

“Headline monthly inflation figure came in at 0.1%MoM or 1.7%YoY.”

“Looking ahead there is the potential for the latest round of tariff hikes, which tended to be focused on consumer goods, to be passed on in prices. This means core inflation is likely to remain elevated and therefore consistent with the Fed’s mandate. On the face of it, this has the potential to limit the scope of additional Federal Reserve rate cuts.”

“With the dollar remaining firm and other central banks embarking on policy loosening the Federal Reserve will cut rates 25bp next week and we expect additional policy loosening in December and 1Q20.”