A spike in oil prices to 10-month highs has triggered a fresh burst of inflation

London (AFP) - US stocks edged higher Wednesday despite data showing rising oil prices pushed US inflation to its largest monthly gain in over a year in August as investors see the Federal Reserve likely to hold interest rates steady.

The consumer price index (CPI), a key inflation gauge, jumped 3.7 percent from a year ago in August, in line with expectations, picking up pace from July’s 3.2 percent figure.

The 0.6 percent monthly increase was also an acceleration from the 0.2 percent registered in July.

But the “core” measure that excludes volatile food and energy prices cooled last month.

US pre-market stock futures fell after the data was initially released, but bounced back with the Dow edging higher at the opening bell. All three major indices pushed into the green as trading continued.

Ben Laidler, global markets strategist at financial services firm eToro, said the drop in core inflation may outweigh the rise in headline inflation.

“However the numbers will still be too high for the Federal Reserve,” which holds its next meeting on interest rates next week, he said in a note to investors.

“This will force it to keep interest rates at a 20-year high until it sees more progress in the last and hardest yards to get inflation firmly on track towards its 2 percent target,” Laidler added.

Briefing.com analyst Patrick O’Hare said the data “probably won’t compel the Fed to raise rates further at this point” but it “will certainly keep the Fed in a ‘higher for longer’ mindset.”

He noted that investors’ expectations of a 0.25 percentage point Fed rate hike later this year dipped only marginally to 43.3 percent.

The US central bank has insisted that its decision-making on monetary policy will be data-driven as it assesses a range of figures, which have for much of 2023 suggested that more than a year of tightening is having the desired effect.

That had fanned optimism that July’s hike was the last and officials would allow its measures to work through the economy and bring inflation to heel.

But a recent run of strong data, particularly on the jobs market and the services sector, has revived talk that more were on the way, with a surge in oil prices to 10-month highs adding to those concerns.

The pick-up has been fuelled by Saudi Arabia and Russia’s decision to slash output until the end of the year, while floods in Libya have hammered its ability to pump.

Oil prices rose further on Wednesday as the International Energy Agency warned that Moscow and Riyadh’s decision would cause a “significant supply shortfall”.

In afternoon trading, both Paris and Frankfurt stocks were lower, ahead of an interest-rate decision Thursday from the European Central Bank.

On the corporate front, shares in British oil giant BP fell nearly 1.4 percent after chief executive Bernard Looney unexpectedly resigned, having admitted to not being “fully transparent” about historical relationships with colleagues.

Looney, 53, has left after less than four years in the role, having seen the firm through a tumultuous period that included huge swings in prices owing to the Covid pandemic and Russia’s invasion of Ukraine.

He had also come under fierce criticism from environmentalists, who have accused BP and rivals of not going far enough in transitioning away from fossil fuels.

- Key figures around 1330 GMT -

New York - Dow: UP less than 0.1 percent at 34,665.63 points

London - FTSE 100: FLAT at 7,529.54

Frankfurt - DAX: DOWN 0.5 percent at 15,6440.80

Paris - CAC 40: DOWN 0.4 percent at 7,225.10

EURO STOXX 50: DOWN 0.5 percent at 4,223.06

Tokyo - Nikkei 225: DOWN 0.2 percent at 32,706.52 (close)

Hong Kong - Hang Seng Index: DOWN 0.1 percent at 18,009.22 (close)

Shanghai - Composite: DOWN 0.5 percent at 3,123.07 (close)

Euro/dollar: UP at $1.0744 from $1.0732

Pound/dollar: UP at $1.2493 from $1.2492

Dollar/yen: UP at 147.44 yen from 147.15 yen on Tuesday

Euro/pound: UP at 86.04 from 85.88 pence

Brent North Sea crude: UP 0.2 percent at $92.25 per barrel

West Texas Intermediate: UP 0.1 percent at $88.95 per barrel