Finance · updated 2h ago · 3 min read
U.S. CPI Accelerates in August, Reinforcing Federal Reserve Rate Hike Next Week
CPI rose 0.4% month-over-month in August. Yearly CPI held at 3.4% in August, unchanged from July.
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August CPI lifts hike odds
U.S. consumer prices accelerated in August, with the Consumer Price Index rising 0.4% last month after edging up 0.1% in July, and inflation advancing 3.4% in the 12 months through August.
“The Consumer Price Index increased 0.4% last month after edging up 0.1% in July”
Gasoline prices jumped 3.9% in August and accounted for more than one-third of the monthly increase in the CPI over the month, while other motor fuels, including diesel, surged 9.6%.
Excluding food and energy, core CPI rose 0.3% on the month and 2.4% year-on-year, and the report was described as reinforcing expectations that the Federal Reserve will raise interest rates next week.
Soon after the CPI data was published, financial markets priced in a roughly 91% chance of a rate hike next week, up from about 72% on Thursday, according to CME FedWatch.
Reuters also quoted Ellen Zentner of Morgan Stanley Wealth Management saying, "today's CPI left the Fed with less room to maneuver" as it tries to maintain its inflation-fighting credentials.
Core stays stubborn
The CPI report kept pressure on the Fed because core inflation remained above the Federal Reserve’s desired target, with core inflation rising 0.3% in August after a 0.2% monthly increase in July.
Sam Williamson, First American’s senior economist, said in a statement, "Inflation regained momentum in August" as higher energy prices lifted the headline rate and stubborn services prices kept underlying inflation pressures alive.
CBS News said the hotter-than-expected report increases the likelihood that the Federal Reserve will issue its first interest rate hike in more than three years next week, and it cited that gasoline costs kept prices elevated.
CME FedWatch showed the likelihood of a rate hike next week jumped to 90% from 70% the previous day, and Adam Crisafulli of Vital Knowledge said the latest CPI shows inflation is "still hot" and "more than enough to justify" a Fed rate hike this month.
NBC News added that the index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase, and it said core inflation jumped more than economists had expected.
What the Fed decision means
With the Fed’s next policy meeting set for Wednesday, Sept. 16, the CPI data was framed as cementing the central bank’s interest rate decision, as the latest inflation reading arrived before the vote.
“set for Wednesday, Sept. 16”
In the Reuters account, the Fed’s benchmark overnight interest rate is currently in a 3.50%-3.75% range, and the CPI report followed strong readings in several components of the Producer Price Index released on Thursday that feed into the Personal Consumption Expenditures price indexes.
NBC News reported that a rate hike could add pressure on consumers already dealing with high rates and prices, and it said the average 30-year fixed rate mortgage rose above 7% after the release.
The same NBC report tied the inflation backdrop to energy costs, noting that the national average price of gas remains elevated by more than 40% since the United States and Israel launched the Iran war Feb. 28.
In a separate Reuters passage, it quoted Fed Chairman Kevin Warsh saying the central bank will "have work to do" if inflation doesn't fade, while also noting that Trump is pressuring the Fed to cut rates and posted "LOWER THE RATE OR I'LL STOP TRADING WITH COUNTRIES" with which the U.S. has a deficit.