Inflation continuing to peak despite petrol price reduction.
Even if the annual rate of the consumer prices index (CPI) fell to 9.9% in August from 10.1% the previous month, economists are still warning that inflation has not yet reached its maximum level.
The Consumer Price Index decreased as a result of a drop in gasoline prices of 6.8% month-over-month, which more than compensated for an additional rise in food price inflation to 13.4% and an increase in apparel price inflation.
Because the average energy price cap will be raised to £2,500 the month after next, Capital Economics anticipates that the CPI will reach its highest point of 11% later this year. The consultancy has also brought attention to today’s upward momentum in services inflation, which increased to 5.9% and ensured that core CPI inflation remained at a 30-year high of 6.3%.
According to the chief economist for the United Kingdom, Paul Dales, “We expect CPI inflation will peak around 11% right before the end of the year, and that core inflation will continue to push higher as well.”
This indicates that the Bank will be required to keep increasing interest rates, from their current level of 1.75 percent to a level of at least 3 percent, if not more.
FTSE 100 under strain, dollar strengthens
Following the release of US inflation numbers, which shook investor confidence, Wall Street experienced its worst session since June 2020 last night, with the technology-focused Nasdaq falling by 5%.
The annual inflation rate came in at 8.3%, which was lower than predicted, fueling anticipation that the Federal Reserve will raise interest rates in the United States by 0.75 percentage points the following week. Even the potential of a one percent increase is being discussed by some market participants.
As a result of the fact that core prices are higher than anticipated, there is also widespread concern that higher interest rates will be required for a somewhat longer period of time.
The head of the Federal Reserve, Jerome Powell, has already made it quite plain that the rate of interest will continue to be increased by the central bank until there is clear evidence that inflation is on a sustained downward trend.
The Dow Jones Industrial Average lost 4% of its value and the S&P 500 lost 4.3% of its value after four consecutive sessions of growth. This was the largest one-day drop on Wall Street in over two years and was caused by fears regarding the impact the result would have on the economy of the entire world.
After the Nikkei 225 dropped by more than 2% and the FTSE 100 index is now poised to drop by 50 points at 7,335, the selling pressure on the markets in Asia persisted. According to CMC Markets, the FTSE 100 index will close at 7,335.
Yesterday’s trading day in London’s top flight finished with a loss of 1.2%, with companies focusing on retail and consumer spending being among the hardest impacted.
Because investors anticipate future aggressive increases in US interest rates, the US currency has risen, which has caused sterling to reverse this week’s gains and is currently trading just around $1.15. Today, a barrel of Brent crude cost $93 USD, marking a period of stability in the price of oil.