US Inflation Surge Bolsters Rate Hike Expectations, Bond Yields Soar

The US consumer inflation rate accelerated to 0.4% last month, surpassing July's 0.1% increase. This surge in prices has bolstered expectations of a Federal Reserve interest rate hike next week, pushing bond yields higher.

David Rees, head of global economics at Schroders, stated that 'today's inflation data have done nothing to change our view that the Fed is behind the curve.' He emphasized that while energy price fluctuations contribute to headline inflation, domestically generated inflation is rising steadily.

Markets now see an 85% chance of a quarter-point rate hike from the Fed next week, up from around 67% prior to the data release. The 10-year Treasury yield briefly touched its highest level in almost three years at 4.9915%, while the 30-year yield scaled a 19-year high before falling back.

Analysts at JPMorgan now predict eight of nine developed-market central banks, including the Fed and BOJ, will hike interest rates by year-end. The European Central Bank raised rates for the second time this year, with some officials hinting at further tightening in October.