US core inflation hit a four-decade high last month, which, to be clear, is the opposite of what Jerome Powell & Friends need to prove their plan to cool the economy and achieve a “soft landing” is working.
Driving the news: The core measure of the consumer price index–which excludes volatile energy and food prices–surged by 6.6% year-over-year last month, up from 6.3% in August.
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On the whole, the year-over-year rate of inflation is now 8.2%, down from 8.3% in August, but higher than what over 50 economists surveyed by Bloomberg predicted.
- Investors and policymakers tend to follow core inflation measures more closely than the high-level numbers to measure the true impact of rising interest rates.
Why it’s happening: A strong labour market, rising wages, and growing corporate profits in the US have led to a lot of money floating about in the economy…some would say too much.
- Mark Hamrick, senior economic analyst at Bankrate told CNBC that higher than expected inflation numbers are a “tremendously unwelcome negative surprise.”
Why it matters: Stubbornly high inflation means the Fed will likely deliver a fourth 0.75 percentage point rate hike… and when it comes to monetary policy, Canada tends to follow closely behind.
Zoom out: Central banks are already struggling to keep up with the US’ aggressive approach (and protect their currencies against a rising US dollar), which is hurting global markets and—according to a growing number of analysts—risks a worldwide recession.