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FTSE 100 Live: Inflation dips to 9.9%, markets rattled by US rates outlook

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Inflation still to peak despite petrol price fall

Economists have warned that inflation is yet to peak, despite the annual rate of the consumer prices index (CPI) easing to 9.9% in August from 10.1% the previous month.

CPI’s downward move was due to a 6.8% month-on-month fall in fuel prices, which offset a further rise in food price inflation to 13.4% and an increase in clothing price inflation.

Next month’s increase in the average energy price cap to £2,500 means Capital Economics expects a peak for CPI of 11% later this year.

The consultancy has also highlighted today’s upward momentum in services inflation, which rose to 5.9% and meant core CPI inflation stayed at a 30-year high of 6.3%.

Chief UK economist Paul Dales said: “We think CPI inflation will peak around 11% just before the end of the year and that core inflation will continue to edge higher too.

“That means the Bank will have to continue raising interest rates, from 1.75% now to 3% if not higher.”

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FTSE 100 under pressure, dollar strengthens

Wall Street endured its worst session since June 2020 last night, with the tech-focused Nasdaq down 5% after US inflation figures rattled investor confidence.

The annual inflation rate of 8.3% was down by less than expected, fuelling expectations for a 0.75% increase in US interest rates by the Federal Reserve next week. Some traders are even talking about the possibility of a 1% rise.

With core prices greater than expected, there are also fears that higher rates will be needed for much longer.

Federal Reserve chair Jerome Powell has already made it clear that the central bank will keep raising rates until there is clear evidence that inflation is on a sustainable downward path.

Fears over the resulting impact on the global economy were reflected in Wall Street’s biggest one-day drop in over two years, with the Dow Jones Industrial Average off 4% and the S&P 500 4.3% lower after four previous sessions of progress.

Asia markets continued the selling pressure after the Nikkei 225 fell more than 2% and the FTSE 100 index is today poised to drop by 50 points at 7,335, according to CMC Markets.

London’s top flight ended yesterday down by 1.2%, with consumer-focused and retail among those hardest hit.

The US dollar has strengthened on expectations for further aggressive rises in US interest rates, causing sterling to reverse this week’s gains at just below $1.15. Oil prices steadied today, with Brent crude at $93 a barrel.

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