Inflation-currency conundrum

Higher US inflation can increase currency volatility

The consumer price index (CPI)-based inflation rate in the US for August increased at the fastest pace in over a year, indicating that the last leg of the Federal Reserve’s inflation battle would not be easy. The annual rate came at 3.7 per cent, up from 3.2 per cent in July. Although the headline rate was partly driven by higher fuel prices, core inflation also witnessed a sequential uptick. In its combat against inflation, the Fed has raised its benchmark policy rate range to 5.25-5.5 per cent, the highest in over two decades. While financial markets expect the Fed to