In the first half hour of trade, the All Ordinaries index and the ASX 200 fell as much as 2.8%, the biggest fall in three months. 

At 10:20am AEST, the All Ordinaries index was down 2.7 per cent to 7,056, and the ASX 200 had also lost 2.7% to 6,818.  

The market was a sea of red, with financial stocks and miners weighing heavily. 

Just one company had risen on the ASX 200 in the first half hour of trade. 

Big banks all lost ground, with the Commonwealth Bank (-3.1%) the worst hit. 

The Australian dollar also plunged nearly 2 cents overnight as the US dollar surged on expectations of more large rate hikes by the Fed. 

It was buying around 67.30 US cents at 7:25 am AEST, down from a high of 69.16 US cents yesterday, as the US dollar index surged to near a two-decade high. 

At 10:00am AEST, the local currency came off its overnight lows to around 67.37 US cents. 

US inflation rises:

Consumer prices in North America increased by 0.1% in August, with US Labor Department figures showing falling gasoline prices were offset by more expensive food and rent. 

Economists expected a 0.1% fall in the US Consumer Price Index after it was unchanged in July because of a decline in oil prices.

The pace of inflation eased over the year as the price of goods dropped because of an easing of supply chain pressures, and a shift in spending to services. 

The CPI increased by 8.3% over the year to August compared to 8.5% over the year to July. 

Core inflation, which removes volatile food and energy prices, increased more than expected, rising to 6.3 per cent over the year to August from 5.9% in July. 

Over the month, core inflation rose by 0.6%, up from 0.3% in July. 

Annual inflation peaked at 9.1% in June, the biggest increase since November 1981, and the highest in 41 years. 

US gasoline prices have plunged from an average record high above $US5 a gallon in June to around $US3.707 per gallon now. 

The Federal Reserve meets next week for its regular policy meeting and is expected to raise interest rates again by 0.75%. 

However, ANZ economists said the chance of a 1% point rise had increased. 

"There is no way the Federal Reserve can moderate its policy tightening or ease its overtly hawkish forward guidance."

"The latest inflation data from the US shows inflationary pressures are still accelerating in the US and are very broad based."

"The market generally anticipates the Fed will dish out another 75 basis point lift, but there is now an increased probability that the FOMC may raise the policy rate by 100 basis points next week."

Last week, Fed chairman Jerome Powell (Above) reiterated that the central bank was "Strongly committed" to fighting inflation. 

The US central bank wants to see US inflation fall to its target of 2% and has pledged aggressive rate hikes to achieve that. 

It has raised benchmark interest rates from near zero in March to the current rate of 2.25% to 2.5 %. 

The Fed has twice raised its policy rate by three quarters of a percentage point, in June and July, to curb surging inflation made worse by the war in Ukraine. 

Official US interest rates could reach 4 per cent by the end of the year or early next year. 

US president Joe Biden said it would "take more time and resolve to bring inflation down" and cited the recently passed Inflation Reduction Act, which is aimed at lowering the cost of healthcare, prescription drugs, and energy costs. 

US stocks slump:

The rise in monthly inflation saw Wall Street tumble to its biggest loss in two years. 

Investors were hoping that the Federal Reserve could scale back its interest rate rises in coming months if price rises continued to ease. 

But all three major US indices plunged, ending four days of gains.

The indices saw their biggest one-day percentage falls since June 2020, during the COVID-19 pandemic. 

Interest rate-sensitive sectors like technology were hit the hardest, with Apple, Microsoft and Amazon weighing on the market. 

The Dow Jones index fell 3.9%, or 1,276 points, to 31,105, the S&P 500 index lost 4.3% to 3,933, while the Nasdaq Composite dropped nearly 5.2% to 11,634. 

European markets also ended in the red: 

The FTSE 100 in London dropped 1.2% to 7,386, the DAX in Germany lost 1.6% to 13,189, and the CAC 40 in Paris fell 1.5% to 4,728.

Oil prices fell, with Brent crude oil down 0.5% to $US93.49 a barrel, while spot gold lost 1.3% on the rising greenback to $US1701.68 an ounce. 

Sources | ABC / Reuters