Beautiful Virgin Islands

Wednesday, Nov 05, 2025

Inflation eased in US but the underlying picture is awful and there may be a fair deal of pain ahead

Inflation eased in US but the underlying picture is awful and there may be a fair deal of pain ahead

The Federal Reserve will be particularly worried that inflation in the US - as shown by the core figure - appears to be being generated domestically.

Inflation eased in the United States in September for the third month running, but the underlying picture is awful and interest rates will rise further than predicted.

It is encouraging that the headline rate of inflation - CPI - fell on a year-on-year basis to 8.2%. It increasingly looks, on this measure, as if US inflation peaked at 9.1% in June, which was the highest in four decades, slipping to 8.5% in July and 8.3% in August.

That was, though, slightly higher than the 8.1% that the market had been expecting. Worse still was the figure for so-called 'core' inflation, the figure which strips out volatile elements such as energy and food.

This came in at 6.6% on a year-on-year basis - up from 6.3% in August and the biggest such increase since August 1982. On a month-on-month basis, core inflation was up 0.6% from August, again significantly ahead of the 0.4% that Wall Street had been expecting.

The news all but guarantees another big interest rate rise from the US Federal Reserve next month.

The Fed has raised its main policy rate - Fed Funds - by 75 basis points (three quarters of 1%) at each of its previous three meetings and is almost certain to do so again next month. That would take Fed Funds to a range of 3.75%-4%. The big question now is whether the Fed goes for a full 100 basis point increase and takes its policy rate to a range of 4%-4.25%.

What will particularly have worried the Fed is that inflation in the US - as shown by the core figure - increasingly appears to be being generated domestically. Previously, there was a case for saying that it had been externally generated, with the war in Ukraine pushing up both energy and food prices. The strength of the core inflation numbers, though, give the lie to that.

As Seema Shah, chief global strategist at Principal Asset Management, put it: "After today's inflation report, there can't be anyone left in the market who believes the Fed can raise rates by anything less than 75 basis points at the November meeting.

"In fact, if this kind of upside surprise is repeated next month, we could be facing a fifth consecutive 0.75% hike in December with policy rates blowing through the Fed's peak rate forecast before this year is over.

"The composition of the inflation reading is perhaps even more worrisome than the overall number. Increases in shelter and medical care indices, the stickiest segments of the CPI basket, confirm that price pressures are extremely stubborn and will not go down without a Fed fight.

"What's more, with food also a key contributor to this month's number, it suggests household budgets may be coming under severe pressures. Slowing growth yet rising inflation - the combination none of us, and least of all the Fed, want to see."

As with the Bank of England in the UK, the Fed has come under pressure for being behind the curve, slow to pick up on inflationary pressures building in the system last year and responding more rapidly with interest rate rises.

It has, though, responded to the take-off in inflation more aggressively than any other central bank around the world.

The Fed's main policy rate - Fed Funds - stood at a range of 0%-0.25% at the end of last year but has since been increased five times and now stands at the current range of 3%-3.25%. It represents the fastest pace at which the Fed has raised interest rates since the early 1980s when Paul Volcker, one of the Fed's most revered chairmen of all time, declared war on the high inflation levels that had blighted the US during the 1970s.

US Federal Reserve Board Chairman Jerome Powell


By contrast, the Bank of England's main policy rate, Bank Rate, stood at 0.25% at the beginning of the year and is now at 2.25%, pointing to more caution at Threadneedle Street. Other central banks too have raised their main policy rate more aggressively than the Bank, including the Reserve Bank of Australia and the Reserve Bank of New Zealand.

The Fed seems certain to continue raising rates aggressively and the expectation must be that interest rates in this cycle will now peak at a higher level than was previously expected.

Jerome Powell, the Fed chairman, has indicated that he would even be prepared to risk a US recession if that is the price that needs to be paid to bring inflation back under control.

The August number had already delivered a warning that core inflation was the main concern. That will now intensify.

Part of the strength in US core inflation reflects, as in the UK, the tight labour market. The number of people of working age who are actually seeking work has fallen on both sides of the Atlantic - pushing up wages for those who are in work. Those higher labour costs for employers are ultimately passed on to their consumers.

If the hot inflation number mean higher interest rates in the near term, it also means pain further down the line to those exposed to them, both businesses and homeowners.

In particular for many US consumers, who during the summer enjoyed a respite from inflation in the shape of lower inflation, there may be a fair deal of pain ahead.

And recent history tells us that, when the US consumer suffers, so too does the global economy.

Newsletter

Related Articles

Beautiful Virgin Islands
0:00
0:00
Close
Massive Spoilers Emerge from MAFS UK 2025: Couple Swaps, Dating App Leaks and Reunion Bombshells
Kurdish-led Crime Network Operates UK Mini-Marts to Exploit Migrants and Sell Illicit Goods
UK Income Tax Hike Could Trigger £1 Billion Cut to Scotland’s Budget, Warns Finance Secretary
Tommy Robinson Acquitted of Terror-related Charge After Phone PIN Dispute
Boris Johnson Condemns Western Support for Hamas at Jewish Community Conference
HII Welcomes UK’s Westley Group to Strengthen AUKUS Submarine Supply Chain
Tragedy in Serbia: Coach Mladen Žižović Collapses During Match and Dies at 44
Diplo Says He Dated Katy Perry — and Justin Trudeau
Dick Cheney, Former U.S. Vice President, Dies at 84
Trump Calls Title Removal of Andrew ‘Tragic Situation’ Amid Royal Fallout
UK Bonds Rally as Chancellor Reeves Briefs Markets Ahead of November Budget
UK Report Backs Generational Smoking Ban Ahead of Tobacco & Vapes Bill Review
UK’s Domino’s Pizza Group Reports Modest Like-for-Like Sales Growth in Q3
UK Supplies Additional Storm Shadow Missiles to Ukraine as Trump Alleges Russian Underground Nuclear Tests
High-Profile Broodmare Puca Sells for Five Million Dollars at Fasig-Tipton ‘Night of the Stars’
Wilt Chamberlain’s One-of-a-Kind ‘Searcher 1’ Supercar Heads to Auction
Erling Haaland’s Remarkable Run: 13 Premier League Goals in 10 Matches and Eyes on History
UK Labour Peer Warns of Emerging ‘Constituency for Hating Jews’ in Britain
UK Home Secretary Admits Loss of Border Control, Warns Public Trust at Risk
President Trump Expresses Sympathy for UK Royal Family After Title Stripping of Prince Andrew
Former Prince Andrew to Lose His Last Military Title as King Charles Moves to End His Public Role
King Charles Relocates Andrew to Sandringham Estate and Strips Titles Amid Epstein Fallout
Two Arrested After Mass Stabbing on UK Train Leaves Ten Hospitalised
Glamour UK Says ‘Stay Mad Jo x’ After Really Big Rowling Backlash
Former Prince Prince Andrew Faces Possible U.S. Congressional Appearance Over Jeffrey Epstein Inquiry
UK Faces £20 Billion Productivity Shortfall as Brexit’s Impact Deepens
UK Chancellor Rachel Reeves Eyes New Council-Tax Bands for High-Value Homes
UK Braces for Major Storm with Snow, Heavy Rain and Winds as High as 769 Miles Wide
U.S. Secures Key Southeast Asia Agreements to Reshape Rare Earth Supply Chains
US and China Agree One-Year Trade Truce After Trump-Xi Talks
BYD Profit Falls 33 % as Chinese EV Maker Doubles Down on Overseas Markets
US Philanthropists Shift Hundreds of Millions to UK to Evade Regulatory Uncertainty in Trump Era
Israeli Energy Minister Delays $35 Billion Gas Export Agreement with Egypt
King Charles Strips Prince Andrew of Titles and Royal Residence
Trump–Putin Budapest Summit Cancelled After Moscow Memo Raises Conditions for Ukraine Talks
Amazon Shares Soar 11% as Cloud Business Hits Fastest Growth Since 2022
Credit Markets Flooded with More Than $200 Billion of AI-Linked Debt Issuance
U.S. Treasury Secretary Scott Bessent Says China Made 'a Real Mistake' by Threatening Rare-Earth Exports
Report Claims Nearly Two Billion Dollars in Foreign Charity Funds Flowed into U.S. Advocacy Groups
White House Refutes Reports That US Targeting Military Sites in Venezuela
Meta Seeks Dismissal of Strike 3’s $350 Million Copyright Lawsuit
Apple Exceeds Forecasts With $102.5 Billion Q3 Revenue Despite iPhone Miss
Israel's IDF Major General Yifat Tomer-Yerushalmi Admits to Act Amounting to Aiding Hamas During Wartime (Treason)
Shawbrook IPO Marks London’s Biggest UK Listing in Two Years
UK Government Split Over Backing Brazil’s $125 Billion Tropical Forest Fund Ahead of COP30
J.K. Rowling Condemns Glamour UK Feature of Nine Trans Women as 'Men Better at Being Women'
King Charles III Removes Prince Andrew’s Titles and Orders His Departure from Royal Lodge
UK Finance Minister Reeves Releases Email Correspondence to Clarify Rental-Licence Breach
UK and Vietnam Sign Landmark Migration Deal to Fast-Track Returns of Irregular Arrivals
UK Drug-Pricing Overhaul Essential for Life-Sciences Ambition, Says GSK Chief
×