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More big interest rises on the way as US inflation hits 8.2%

US Federal Reserve boss Jerome Powell (REUTERS)
US Federal Reserve boss Jerome Powell (REUTERS)

US inflation hit a higher than expected 8.2% in September making it ever more likely that the Federal Reserve will raise its main interest rate by a further 0.75% at its next meeting in November.

The figure for annual US CPI was only slightly higher than the 8.1% consensus forecast but the 0.4% monthly rate was twice what was expected. Core inflation, which excludes food and energy was at 40 year high of 6.6%.

Analysts said the figures showed that the most aggressive monetary tightening since the Eighties has not yet had the desired effect.

The spike will increase pressure on the Bank of England to order a substantial increase in its rate by 0.75% or even a full percentage point when its Monetary Policy Committee makes its decision on November 3.

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It also sent shares tumbling around the world. By lunchtime the FTSE-100 was down 1.7%, or 113 points, at 6714.

Richard Carter, head of fixed interest research at wealth management firm Quilter Cheviot, said: “As was widely expected, today’s US CPI numbers once again showed that inflation is gradually easing on the back of lower gasoline prices, dipping to 8.2% in the 12 months to September compared to 8.3% in August.

“However, the fact that the core rate remains well over 6% demonstrates that inflation pressures are still broad-based and there seems little prospect of the Federal Reserve toning down its hawkish rhetoric at this stage.

“Despite cooling off slightly, inflation remains high and we would therefore expect to see another 0.75% interest rate hike at the next meeting and for the Federal Funds rate to be close to 4.5% by year-end. Investors continue to pray for a Fed pivot, but they may need to be patient.”