Central Banks Navigate Inflation Signals Distorted by One-Off Price Jumps

The Federal Reserve, Bank of England, and Bank of Japan are set to meet in the coming days as policymakers navigate inflation signals that have been distorted by one-off price jumps.

According to the US Bureau of Labor Statistics, consumer prices rose 0.4% in August on a seasonally adjusted basis, taking the annual rate to 3.4%, with core inflation at 2.4%. Within this, the communication index climbed 2.3% on the month, driven by a 5.9% jump in wireless telephone services.

Kevin Warsh, the Federal Reserve Chair, has argued that such prints should be read component by component, and disaggregated to separate idiosyncratic price moves from broad pressure.

The Bank of England is expected to hold Bank Rate at 3.75% on Thursday, but the more consequential decision is the annual quantitative tightening target, with markets expecting a slowdown to about £50bn.