It's been a great trading session thus far for ASX shares on Thursday. At the time of writing, the S&P/ASX 200 Index (ASX: XJO) has gained a rosy 0.59% and is back over 8,000 points. The latest US inflation numbers might have something to do with this optimism.
Today's bullish ASX showing comes after a joyful session of trading over on the American markets last night.
The Dow Jones Industrial Average (INDEXDJX: .DJI) swelled by 0.31%, while the S&P 500 Index (SP: .INX) lifted an even more impressive 1.07%. But it was the tech-heavy Nasdaq Composite Index (NASDAQ: .IXIC) that ran away with it, soaring a hefty 2.17%.
These rises come after the release of the latest inflation figures from the US Bureau of Labor Statistics.
According to the Bureau, the US CPI (consumer price index) rose by 0.2% over the month of August. That put America's annual inflation rate at 2.5%, down 0.4% from where it was at the end of July.
2.5% is the lowest inflation rate the US economy has seen for more than three years. The last time we had this kind of figure was back in February 2021.
Housing and shelter costs were the largest contributors to American inflation, increasing 0.5% in August. Other sectors of the economy that saw increased prices included airline fares, insurance, and education.
However, energy costs, including fuel and oil, fell dramatically over August, helping to tame inflation numbers. The Bureau estimated that energy commodity costs (which include gasoline and fuel oil) were 10.1% lower in August than they were 12 months prior.
So why did this news seemingly elicit such bullish reactions on both Wall Street last night and the ASX so far today?
What do the latest American inflation numbers mean for Australia?
Well, we don't have to look too far for this one. Obviously, inflation has been a major economic headache across both the American and Australian economies over the past few years. It has spurred a dramatic increase in interest rates in both economies over this period, which has slowed economic growth.
It seems that, at least in America, these rate rises are having their desired effect, and inflation is almost back under control. Remember, central banks tend to want to see inflation in a 2-3% range over the economic cycle.
Even more pleasingly, the Bureau also found that real (inflation-adjusted) hourly earnings for all American employees rose by 0.2% over the month. This indicates that living standards are rising, even though inflation is falling.
All of this adds up to a healthy US economy, which is good news, by extension, for Australia and the ASX. If inflation is coming down in the economy of one of our major trading partners, it usually helps put downward pressure on our own inflation rate.
It also adds fuel to the rumours that the US Federal Reserve is set to cut US interest rates later this month. As reported by CNBC, the markets are now pricing in an 85% chance that the Fed will deliver a 25 basis point cut in interest rates at its next meeting on 18 September. Again, lower rates in the States can put downward pressure on our own interest rates.
So it's hard to find anything unlikeable in the figures released in the US last night. And that probably explains the good mood on the US markets, and on the ASX today.
