U.S. inflation topped 3.4 per cent boosting odds of interest rate hikes

U.S. inflation surged to 3.4 percent last month, primarily driven by soaring gas prices following renewed conflict in the Middle East. This marked a significant jump in monthly inflation rates, compared to the same time last year. While core prices, excluding volatile food and energy, rose 2.4 percent year-over-year, a slight decrease from July's 2.5 percent.

However, on a monthly basis, core prices increased by 0.3 percent, the highest growth since April. This persistent inflation has posed a major challenge for the Federal Reserve and has negatively impacted voter sentiment towards the Trump administration's economic record. The prospect of a September 16 interest rate hike by the Federal Reserve appears likely, with 70 percent of Wall Street investors anticipating such a move, as indicated by CME Fedwatch.

President Donald Trump has proposed $5,000 payments to every American adult if his party retains control of Congress, a proposal that could drive inflation rates higher. In response, Treasury Secretary Scott Bessent has accelerated the repurchase of Treasury bonds to keep long-term interest rates in check. However, the yield on the 10-year Treasury reached a nearly three-year high, reflecting the ongoing inflationary pressures.

Rising gas prices, hotel room costs, and airfares, alongside rising apparel and grocery prices, have all contributed to the surge in inflation. While economists and Fed officials have previously attributed higher gas prices to temporary disruptions, the ongoing conflict in the Middle East and the potential impact of tariffs suggest that inflation may remain elevated for an extended period.