14 September 2023
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US inflation ticked up in August

By Edward Bell

Inflation in the US ticked up in August, with the CPI index rising by 3.7% y/y and 0.6% m/m compared with 3.2% and 0.2% in July. The move higher in headline inflation was thanks to a large degree to higher energy prices with gasoline prices rising last month. Core inflation came in in line with expectations on the annual rate at 4.3%, down from 4.7% a month earlier, but was slightly faster than expectations on a monthly basis, rising by 0.3% compared with 0.2% a month earlier. So-called super core inflation, which looks at services ex-housing, was stable at 4.1% y/y but jumped almost 0.4% m/m, suggesting some embedded inflationary pressures remain in the US economy. The August inflation print is unlikely to push the Federal Reserve to hike next week but we think it will nevertheless keep a hawkish bias to commentary. We expect the Fed to keep rates on hold until the end of H1 2024.

Industrial production in the UK declined in July, falling 0.7% m/m and slowing to an increase of 0.4% y/y. That contributed to a 0.5% drop in monthly GDP for the UK with services also impacted by strikes and poor weather. A sharp fall in activity at the start of Q3 runs the risk of the economy contracting this quarter. The Bank of England next meets on September 21 with a 25bps hike almost 80% priced in by markets.

Beyond the UK, manufacturing also weakened in the Eurozone with industrial production down 1.1% m/m in July, a steeper drop than markets had been expecting and a reversal of a modest increase recorded in June. The decline Eurozone-wide follows on from disappointing industrial data out of Germany recently. High rates and still rapid inflation are weighing on the outlook for the manufacturing sectors in the Eurozone’s economy while the recent weakness in the Euro may provide a bit of support.

Today’s Economic Data and Events

  • 10:00 SA CPI y/y Aug
  • 16:15 EC Deposit facility rate: forecast 3.75%
  • 16:30 US retail sales Aug m/m: forecast 0.1%
  • 16:30 US initial jobless claims Sep 9: forecast 225k

Fixed Income

  • US Treasuries initially slumped on the August CPI release but as the market digested that levels were roughly in line with expectations those losses were reversed and USTs ended higher on the day. The 2yr UST yield closed lower by 5bps at 4.9692% while the 10yr yield fell 3bps to 4.2485%. Markets have increased their probability of one more hike by the end of the year but only to about a 50% chance.
  • European bonds closed quieter ahead of today’s ECB decision. Bund yields were near flat at 2.646% though gilt yields dropped sharply, down 7bps, as weak economic data out of the UK tempers the outlook for further rate hikes from the Bank of England.


  • FX market reaction to the CPI print was choppy but quickly dissipated. EURUSD ended the day lower by about 0.2% at 1.073 but will be in focus today for the ECB rate decision. GBPUSD closed unchanged at 1.249 while USDJPY edge up by 0.3% at 147.46.
  • Commodity currencies were relatively quiet with both USDCAD and AUDUSD near unchanged at 1.3549 and 0.6422 respectively. NZDUSD showed more promise, up 0.2% at 0.5918.


  • The reaction to the expectations-meeting CPI print was mixed in equity markets, with no clear momentum in either direction. In the US, the S&P 500 closed up 0.1% while the Dow Jones dropped 0.2%. The NASDAQ gained 0.3%.
  • In Europe, stagflation fears weighed on equity markets and the general trend was downward. The FTSE 100 managed to close flat, but the DAX and the CAC both closed down 0.4%.
  • Locally, the DFM fell 0.3% while the ADX added 0.1%.


  • Oil prices settled lower overnight, albeit modestly. Brent futures fell 0.2% at USD 91.88/b while WTI dropped 0.4% to USD 88.52/b. Product prices remained bid, however, with RBOB up 0.4% and New York HO adding 3%.
  • The IEA published their September oil market report and maintained an estimate of oil demand growth of 2.2m b/d for 2023 before consumption growth slows next year to less than 1m b/d. The IEA described the Russia-Saudi alliance on oil production as a “challenge” and estimate a market deficit of about 1.2m b/d for H2 2023, smaller than the OPEC assessment released earlier this week, but still a meaningful dent to inventories.
  • EIA data reported a 4m bbl build in US crude stocks last week along with increases in gasoline and distillate inventories. Oil production in the US also ticked up by 100k b/d to 12.9m b/d while product supplied added about 800k b/d to 20.99m b/d.

Written By

Edward Bell Head of Market Economics

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