The US Federal Reserve is still likely to hike interest rates at its November meeting after core inflation figures for August came in higher than expected, analysts at Bank of America (BofA) Securities said on Wednesday.
The Consumer Price Index (CPI) was roughly in line with expectations, with headline inflation rising 0.6% from a month earlier, resulting in an annual increase of 3.7%.
However, core inflation of 0.3% for the month was above consensus and also the BofA analysts’ expectations of a 0.2% month-over-month print. Still, the annual rate fell to 4.3%, the lowest reading since September 2021, as it eased towards the Fed’s 2% target.
While core inflation excludes volatile food and energy prices, the analysts noted that a big increase in the price of gasoline over the month boosted headline inflation.
“Given further increases in crude oil prices and unseasonably warm weather, energy prices could continue to put upward pressure on headline CPI in the near term,” the analysts wrote in a note.
“Food prices also rose on the month, increasing by 0.2% m/m for a second consecutive month as both food at home and food away from home rose.”
At its July meeting, the Fed raised rates by a quarter of a percentage point to the highest level in 22 years and left the door open to further increases this year.
While it is not expected to raise rates at its September 19-20 meeting, the BofA analysts believe another hike is still looming for 2023.
“We retain our call for a 25bp hike in November. Core CPI was stronger than we expected, and activity has been robust to start 3Q,” the analysts wrote.
“Given this backdrop, we think the Fed will continue to err on the side of doing too much rather than too little and follow through with one more 25bp hike.”
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