U.S. CPI rises 0.4% in August, boosting odds of Fed rate hike
The consumer price index increased 0.4% in August, matching forecasts, while core CPI rose 0.3%, prompting markets to view a Federal Reserve rate increase as likely.
The U.S. consumer price index climbed 0.4% in August, taking the 12-month gain to 3.4%, according to the Bureau of Labor Statistics. Core CPI, which excludes food and energy, rose 0.3% month-over-month and 2.4% year-over-year, both in line with expectations.
Energy prices drove much of the headline increase, with gasoline up 3.9% and the broader energy index rising 2.1% amid heightened Middle East tensions. Food prices edged higher by 0.1%, while the food index was up 2.7% annually. Shelter costs rose 0.3% and transportation services increased 0.5%, contributing to the overall gain.
Traders responded by raising the probability of a quarter-point Fed rate hike to about 90%, according to the CME Group's FedWatch tracker. The CPI report is the last major inflation gauge before the Federal Open Market Committee meets next week.
"Chair Warsh and others signaled that interest rates can remain on hold only if disinflation continues and today's August report did not deliver that," said Kathy Bostjancic, chief economist at Nationwide.
Nationwide now expects the Fed to raise its benchmark rate by a quarter point, leaving the federal funds rate in its current 3.5%-3.75% range.