Global stock markets were rattled on Tuesday after US inflation data came in higher than expected.
It came as the US consumer price index rose by 8.3% in the year to August, down from July’s 8.5% figure. However, this missed forecasts of a 8.1% drop.
On a monthly basis, prices increased by 0.1%, ahead of forecasts of a slight fall of 0.1%.
Meanwhile, UK unemployment tumbled to its lowest level in almost 50 years, according to new data from the Office for National Statistics (ONS). Some 3.6% of adults were out of work and looking for jobs in the three months to the end of July, the lowest rate since 1974.
More Brits were classed as economically inactive or stopped looking for jobs in the latest quarter, while increases in long-term sickness and moves into education meant 194,000 people left the workforce.
The data also showed real wages tumbled to their lowest in almost two decades as inflation continued to outstrip pay rises.
The number of job vacancies in June to August fell by 34,000 to 1,266,000, the largest quarterly fall since June to August 2020.
"There’s little doubt the current cost of living crisis is focussing minds and people are looking for any means possible to make ends meet and for a record number of over 65’s that’s meant a return to the workplace," Danni Hewson, AJ Bell financial analyst, said.
"Most are choosing to work part-time and many are self-employed, helping with childcare, working in arts, education, and recreation."
He added: "There are big questions about what’s going to happen to the jobs market over the next six to twelve months. How will continued difficulties finding staff impact businesses ability to grow? How will demand for higher wages impact their ability to invest in future growth? And will recession stop growth in its tracks turning the tide on the labour market as companies switch from recruitment to redundancy?”
Across the pond, the S&P 500 (^GSPC) dipped 3.2% on the back of the inflation news, and the tech-heavy Nasdaq (^IXIC) fell 4.2%. The Dow Jones (^DJI) edged 2.7% lower at the time of the European close.
Investors are anticipating America’s Federal Reserve will now press on with hefty interest rate rises, to tame inflation. The US central bank is expected to raise interest rates by another 75 basis points at its next meeting.
It came after Wall Street indices posted a fourth straight session of gains overnight, with the push higher being driven by energy, as well as consumer discretionary retail.
Meanwhile, the US dollar surged on the latest figures, wiping out the pound’s earlier gains.
Watch: How does inflation affect interest rates?
Seema Shah, chief global strategist at Principal Global Investors, said: "At Jackson Hole last month, Fed chair Powell clearly noted the need to see a string of slowing inflation data before the Fed can feel confident about the outlook. So far, they have a grand tally of one.
"We continue to expect policy rates to increase to 4.25pc as the Fed scrambles to get a grip on inflation, but perhaps it’s time to consider a higher peak rate?"
The US food index also jumped by 11.4% in the last year, the largest 12-month increase since May 1979.
Food to eat at home cost 13.5% more than in August 2021, which included a 16.4% increase in cereals and bakery products, a 16.2% jump in dairy prices, and a 9.4% rise in fruits and vegetables.
Elsewhere, Twitter (TWTR) shareholders are voting on Elon Musk’s $44bn takeover, with expectations that the majority will vote in favour of the deal. However, the Tesla (TSLA) boss has said he will not proceed with the acquisition, prompting a high profile court battle scheduled for next month.
Asian stocks rose on Tuesday as traders in Korea returned from holidays in a mood to catch up on a global bounce, with a 2% jump on the Kospi (^KS11) index.