US August core CPI rises 0.3%, BMO's Anderson sees further rate hikes in view
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Scott Anderson, chief US economist at BMO, said that after the August US consumer price index showed the core index rose 0.3% month-on-month, above the market expectation of 0.2%, the Federal Reserve is likely to go ahead with a rate hike at next week's Federal Open Market Committee meeting, with further increases expected afterward. The headline index rose 0.4% month-on-month, in line with market expectations, but what the market focused on more was the 0.3% rise in the core index. Particularly troubling is that services price growth remains stubbornly high, with supercore services prices, excluding housing and energy, rising 0.51% month-on-month. With gasoline and crude oil prices climbing further in September, there is little evidence that inflation will naturally return to 2%, and it could instead reaccelerate, he said. With this CPI reading being the last major inflation indicator before next week's FOMC meeting, views within the committee have likely tilted toward a rate hike. At the time of writing, the federal funds futures market has priced in an 88% probability of a rate hike next week and has almost fully priced in further increases through year-end, and Anderson said these market expectations are broadly reasonable.
