US Core Inflation Rises 0.3% in August as Fed Rate-Hike Odds Surge to 90%
- Core consumer prices increased 0.3% in August, exceeding economists’ forecast of a 0.2% rise.
- Headline inflation climbed 0.4% month-on-month and 3.4% annually, driven largely by higher energy costs.
- Market expectations of a quarter-point Federal Reserve rate hike rose from about 70% to 90% after the report.
US consumer prices rose more sharply than expected in August, strengthening expectations that the Federal Reserve could increase interest rates at its policy meeting next week.
Data released by the Bureau of Labor Statistics on Friday showed that the core consumer price index, which excludes volatile food and energy costs, increased 0.3% from the previous month. Economists surveyed by Bloomberg had forecast a smaller rise of 0.2%.
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On an annual basis, core inflation stood at 2.4%.
Headline CPI advanced 0.4% during August, bringing the annual inflation rate to 3.4%, in line with market expectations.
Higher energy costs were the main contributor to the monthly increase. Gasoline prices surged 3.9% and accounted for nearly one-third of the overall rise in consumer prices.
The broader energy index increased 2.1% during the month amid heightened tensions in the Middle East. Energy prices were also 16.3% higher than a year earlier.
Other categories also recorded increases, with shelter costs rising 0.3% and transportation services climbing 0.5%.
The report represents the final major inflation reading available to Federal Reserve officials before their September 15–16 policy meeting.
Following the data’s release, the probability of a quarter-point interest-rate increase jumped to 90%, according to CME Group’s FedWatch tool. Before the report, markets had placed the likelihood of a rate hike at approximately 70%.
Federal Reserve Chair Kevin Warsh has said the central bank will “have work to do” if inflation fails to move toward its 2% target. The Fed’s benchmark interest rate currently stands within a range of 3.50% to 3.75%.
