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Edward Bell - Senior Director, Market Economics
Published Date: 14 September 2023
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.
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