U.S. consumer prices accelerated in August, rising 0.4% as gasoline and motor fuel costs surged.
August Consumer Inflation Accelerates as Energy Prices Surge
U.S. consumer prices picked up speed in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Federal Reserve will raise interest rates next week. WASHINGTON, Sept 11 (Reuters) – U.S. consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Federal Reserve will raise interest rates next week. The Labor Department’s Consumer Price Index report on Friday followed strong readings in several components of the Producer Price Index released on Thursday that feed into the Personal Consumption Expenditures price indexes, the inflation measures the U.S. central bank tracks for its 2% target. The two reports led economists to think that PCE inflation excluding the volatile food and energy categories picked up in August.
The Consumer Price Index increased 0.4% last month after edging up 0.1% in July, the Labor Department’s Bureau of Labor Statistics said. In the 12 months through August, consumer inflation advanced 3.4% after rising by the same margin in July. The rise in the CPI was in line with economists’ expectations. Economists polled by Reuters had forecast the CPI increasing 0.4 per cent over the month and climbing 3.4 per cent year on year. Excluding the volatile food and energy components, the CPI rose 0.3 per cent last month after gaining 0.2 per cent in July. The so-called core CPI increased 2.4 per cent year-on-year in August after rising 2.5 per cent in July.
A 3.9% jump in gasoline prices after two straight monthly declines accounted for more than a third of the increase in the CPI over the month. Other motor fuels, which include diesel, surged 9.6%. They surged 44% year-on-year in August. Crude oil prices climbed back above $100 a barrel this week, while diesel prices are at record highs. There was, however, some respite for consumers at the supermarket. Food prices edged up 0.1% for a second straight month. Grocery prices were unchanged amid muted increases in the prices of meat and fish. Fruit and vegetable prices fell 0.4% over the month, weighed down by a 6.2% drop in the cost of lettuce because of a Cyclospora outbreak. But egg prices increased 2.9%, while nonalcoholic beverages cost more as did dairy and related products.
Financial Markets Price in Rate Hike as Energy Shocks Spread
Financial markets initially priced in a 91% chance of a quarter-point rate hike at the Fed’s meeting on Tuesday and Wednesday, before settling back to 87%, CME’s FedWatch tool showed. That was up from 72% on Thursday. The Fed’s benchmark overnight interest rate is currently in a 3.50%-3.75% range. Most economists said the firmer inflation readings, combined with signs of the labor market regaining its footing in August, would compel Fed officials to raise borrowing costs not only next Wednesday, but possibly again in October or December.
They argued that with the Iran war continuing, the energy shock would spread through the economy. They also expected an AI buildout to drive inflation. Energy inflation does not stay at the gas station. It travels by truck, airplane and cargo ship into nearly every store in America,
said Sung Won Sohn, a finance and economics professor at Loyola Marymount University. The Fed is now more likely than not to raise its policy rate … it cannot afford to let an energy shock become an everything shock.
It wasn’t as hot as yesterday’s PPI, but today’s CPI left the Fed with less room to maneuver as it tries to maintain its inflation-fighting credentials,
said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. The odds of a rate increase had diminished following comments by Fed Governor Christopher Waller last week that he was inclined to argue in favour of keeping rates steady if data confirmed inflation pressures were cooling.
Economists warning about broader spillover effects pointed out that rising transportation and fuel expenses inevitably filter through the wider economy. Some saw price pressures persisting because of tariffs on imports, most recently against Canada, one of the United States’ top trade partners.
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