Gasoline prices drive up US monthly inflation; four UK interest rate hikes expected by next summer – business live

US consumer confidence has fallen again, as Americans grow more worried about inflation.

The University of Michigan’s consumer sentiment index, just released, has dropped by almost four points to 47.8 points this month, down from 51.7 in August – the second consecutive month of decreases.

The survey found that consumer expectations have fallen this month, and that people are also gloomier about current economic conditions.

Surveys of Consumers director Joanne Hsu explains:

Democrats and Republicans alike posted sizable declines, while independents were little changed from August. Year-ahead expectations for both personal finances and business conditions plunged. With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.

Overall, sentiment is now 16% below February, prior to the start of the Iran conflict, and 13% lower than a year ago, Hsu added.

Investors may feel that the US Federal Reserve would bolster its credibility as an inflation-fighting central bank by hiking interest rates next week.

That would explain why the US stock market has opened higher, explains Janet Mui, head of market analysis at RBC Brewin Dolphin:

Markets have responded quickly, as they priced in the probability of a rate hike next week from 70% before the CPI release to 90% immediately afterwards. Interestingly, bond yields edged lower and stocks reacted positively. The likely interpretation is that if the Fed does follow through with a rate hike to restore inflation credibility, that would help anchor long-term inflation expectations and be seen as a positive development.

Given the ECB has hiked, alongside the recent data and market pricing, it would be a surprise if the Fed remained on hold next week. If it doesn’t, the Fed will face a serious credibility challenge and Fed chair Warsh will need to explain its rationale clearly to the market.”

The US stock market doesn’t appear concerned by today’s inflation report, or the rising chance of an interest rate hike next week.

The Dow Jones industrial average has jumped by 622 points, or 1.2%, to 52,688 points at the start of trading in New York.

The broader S&P 500 index is up 1.05%.

Jon Butcher, senior US economist at Aberdeen reckons the jump in monthly core inflation will seal a US interest rate rise next week:

“A Federal Reserve hike next week is now looking highly likely. Today’s CPI data showed core prices re-accelerating in August, rising by an above consensus 0.3% month on month. This removed the main obstruction to a rise in the fed funds’ rate next week, that price data had been showing a disinflationary trend.

We have seen a divided FOMC in the past weeks, with some members calling for hikes now, while others suggested that they would vote to remain on hold unless upside inflation risks materialised. As things stand today, the inflation data suggest those upside risks are manifesting. And with oil prices above $100 per barrel and no end to the conflict in the Middle East on the near-term horizon, inflation risks remain firmly tilted to the upside.

Stephen Coltman, Head of Macro at 21shares argues the Federal Reserve will feel pressure to raise rates next week:

The Fed would not normally be looking at rate increases given a core CPI of just 2.4%, but with the trend in “Supercore” (excluding housing) coming in hotter than expected, and with high oil prices boosting the headline, the committee will likely feel pressured to hike next week in order to show it is being responsive.

I think the Fed would have liked more time to see how recent increases in yields are affecting the economy, where consumers are already under pressure amid slowing wage growth and what feels like a tax increase from higher energy prices, but today’s number has likely forced their hand.

Investors believe the US Federal Reserve is more likely to raise US interest rates next week following August’s inflation report.

Market odds on a rate increase at the Fed’s meeting next week have risen to 82% after earlier touching 90%, Reuters reports. Before the report the market was placing 68% odds on a rate hike on 16 September.

Anthony Willis, senior economist at Columbia Threadneedle, believes a hike next week is a ‘done deal’:

“Expectations for a US rate hike were already climbing after the strong jobs data last week. Historically the narrative was that the Fed would ‘nudge’ market expectations towards at least 70% probability before a policy move, such that policy ‘shocks’ were limited. However, in the new Kevin Warsh era, they appear comfortable to play their cards close to their chest.

“Over the course of this week, helped by higher commodity prices, expectations for a Fed hike had climbed to the 70% level. Given how much weight Warsh has put on the inflation data, and his frustrations with inflation persistently above target for over five years, today’s CPI print felt like the final piece in the jigsaw for a potential policy move next week. In the aftermath of the August CPI release, a Fed hike now appears to be a done deal, with markets now pricing a 93% probability the Fed will hike next week”.

US government borrowing costs have hit their highest level since October 2023, after today’s inflation report showed prices were still rising across the US economy.

The yield on 10-year Treasury bills traded as high as 4.99% shortly after the US inflation report was released.

They’ve now dipped back to 4.93%, though, slightly down on the day…

There are some interesting moves in US food prices last month, even though the index for food at home was unchanged in August.

Four of the six major grocery store food group indexes increased in August – here’s the details:

The meats, poultry, fish, and eggs index increased 0.1 percent over the month, as the eggs index rose 2.9 percent. The index for other food at home also increased 0.1 percent in August. The nonalcoholic beverages index increased 0.2 percent over the month, and the dairy and related products index rose 0.3 percent.

The index for cereals and bakery products was unchanged in August, while fruits and vegetable prices fell 0.4%.

The index for lettuce continued to fall, declining 6.2 percent in August after decreasing 16.4 percent in July.

Iceberg lettuce has been blamed for a surge in American cases of the parasitic illness cyclosporiasis…

US core inflation also picked up a little pace in August.

The index for all items excluding food and energy rose by 0.3% in August, after increasing 0.2% in July.

Indexes that increased over the month include communication, lodging away from home, airline fares, education, and used cars and trucks, the BLS reports.

However, on an annual basis core inflation dipped to 2.4% (above the Federal Reserve’s target for prices to rise by 2% per year), down from 2.5%.

Newsflash: US inflation picked up last month, on a monthly basis, as the surge in motor fuel prices hurt American consumers.

The Consumer Price Index increased by 0.4% during August, the U.S. Bureau of Labor Statistics has reported, up from 0.1% in July.

The annual inflation rate is unchanged at 3.4%.

Pricier gasoline drove up US inflation in August – the index for gasoline rose 3.9% in August, accounting for over one third of the monthly all items increase.

Energy prices jumped by 2.1% in the month – another sign that Donald Trump’s war with Iran is hurting consumers.

Shelter (or housing) became 0.3% more expensive, while food prices increased 0.1% over the month, including a 0.3% rise in the index for food away from home (eg at restaurants).

Investors around the world are bracing for the final significant data release of the week – the US inflation report for August.

August’s CPI report is likely to influence central bank policymakers as they weigh up whether to raise US interest rates at next week’s Federal Reserve meeting.

Economists are forecasting the monthly inflation rate will pick up in August, to 0.4%, from 0.1% in July, while the annual rate is expected to be unchanged at 3.4%.

Core inflation is expected to drop a little, from 2.5% to 2.4%.

But as we saw this morning with the UK GDP report, these expectations can’t infallible.

The report is due in just over 20 minutes time (8.30am on the East Coast, 1.30pm in the UK)

Saxo UK investor strategist, Neil Wilson, predicts the inflation report will move the bond market:

Odds of a Fed rate hike next week have shortened from 60% to 70%, but as the CPI report will dictate assumptions (based on recent Fed speak) we could see another considerable move of size in front-end rates today. The yield curve is like a coiled spring right now.

The economic news from France is less positive than in the UK today.

While Britain’s growth was beating forecasts this morning, French finance minister Roland Lescure ⁠was warning that France’s economy will grow less than expected this year, meaning the government will miss its budget deficit ⁠target,

Lescure told ⁠journalists he was lowering the government’s 2026 economic growth forecast to 0.5% from 0.7% previously, but stuck with a projection of 1.0% for next year.

Lescure explained:

This year has been marked by extreme crises involving four different types of ⁠shocks.

Those shocks were domestic political uncertainty, surging energy prices, extreme summer weather and a jump in borrowing costs on bond markets, Reuters reports.

Lescure also explained that slower growth will make it more difficult for ‌the government to trim its fiscal budget ‌deficit as planned to 5.0% of economic output this year, saying:

The reality is that the budget was built on a 5% assumption. And the ‌reality is that, today, 5% is no longer an option.

Over in Moscow, the Bank of Russia has left interest rates on hold today – at 14% – despite rising inflation pressures.

Announcing their decision, policymakers say:

The economy as a whole is growing at a moderate pace in 2026 Q3. Current price pressures have increased significantly in recent months.

The Bank of Russia estimates that underlying price growth has accelerated to 5–6% in annualised terms, primarily due to the impact of a temporary reduction in production capacities in certain sectors. As these effects fade and aggregate demand grows moderately, underlying inflation will resume its decline.

UK housebuilder Berkeley Group indicated this morning that it’s not seen a pick-up in the housing market over the summer.

Berkeley Group told shareholders this morning the customer sentiment, and activity in the housing market, have been hit by the ongoing Middle East conflict.

They added:

While Berkeley is receiving good and stable levels of enquiries, the uncertainty and volatility in the market means that customers without an immediate need to move and readily available liquidity remain more cautious to commit, a position similar to that reported with our full year results in June.

Berkeley Group went on to call for “urgent reform” of the UK’s current stamp duty regime.

The company is proposing a 1% cap for first-time buyers and downsizers, and the removal of a 5% surcharge on investors.

Ratings agency Fitch has predicted that the current high energy prices increase the possibility of regulatory or political intervention in markets.

Pilar Auguets, a senior director in the Fitch Ratings EMEA Utilities team, explains:

High electricity prices could intensify calls for political intervention in wholesale power markets, distorting investment signals. While structural reforms would likely require lengthy implementation and must balance affordability against investment incentives, pressure to shield households and industries from elevated energy costs is likely to increase.

European gas prices are also dropping today.

The month-ahead UK gas price is down 1.6% today at 201.77p per therm, having yesterday hit its highest level since December 2022.

Continental European gas prices are down 1.9% at €80.50 per therm, having also hit the highest level since the end of 2022 on Thursday.