US Inflation Rate Surprises with Lower Than Expected Rise

The US inflation report for August came in lower than expected, with the core PCE deflator, the Federal Reserve's preferred measure of inflation, increasing by only 0.2% month-on-month.

This is a welcome surprise for the Fed, which was expecting a 0.3% increase, and suggests that the economy may be in better balance than thought.

The annual rate of core inflation is still at 3%, but this latest reading brings it closer to the Fed's 2% target.

NY Fed President John Williams had stated yesterday that there was no immediate urgency for another interest rate hike, and today's report supports his view. The market reaction has been significant, with only 9 basis points now priced in for the October Federal Open Market Committee meeting, down from 18 basis points at the beginning of yesterday.