America still has an inflation problem

Editor’s note (September 14th 2022): This story has been update to include markets’ reaction.

It had been hoped that America’s latest inflation report would bring good news. Headline annual inflation has been falling from the peak of 9.1% lodged in June, and economists expected that August would bring a second consecutive month of only modest increases—by recent standards—in core prices, which exclude food and energy. Those hopes have been dashed. The release on September 13th showed another fall in the headline annual rate, to 8.3% in August. But core prices rose 0.6% during the month, twice the 0.3% forecast. The news hit markets hard: the S&P 500 index of shares dropped by 4.4% as investors worried that the Federal Reserve would have to raise rates harder and faster to cool the economy.

Investors are focused on core inflation because of big swings in energy prices. The price of crude oil is down a quarter from its peak in early June. Looking at a breakdown of the August…

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