U.S. consumer prices rise 3.4% in August, boosting odds of Fed rate hike

Consumer prices rose 3.4% from a year earlier in August, the same pace as July and slightly above the 3.3% economists had forecast, as higher gasoline costs kept inflation elevated. The Labor Department said gasoline accounted for more than one-third of the monthly CPI increase, with gasoline up 27.4% year-over-year and 3.9% from the previous month.

Core CPI, which excludes food and energy, rose 2.4% annually, in line with expectations, but increased 0.3% month-over-month, a faster pace than the 0.2% rise in July. Analysts said the hotter-than-expected data raises the likelihood that the Federal Reserve will deliver its first rate hike in more than three years at its September 16 meeting. CME FedWatch raised the probability of a hike to 90% after the report, up from 70% the day before.

Fed Chairman Kevin Warsh has warned that curbing inflation remains the central bank’s top priority. Adam Crisafulli, head of Vital Knowledge, noted that the CPI shows inflation is “still hot” and “more than enough to justify” a rate increase, and he expects inflation to stay elevated in September.

Energy prices continued to climb amid the Iran conflict, with diesel reaching a national average of $6.06 per gallon, more than 60% higher than a year ago, and gasoline averaging $4.30 per gallon. Alexandra Wilson-Elizondo of Goldman Sachs Asset Management said the data does not fully capture the latest energy-price pressures and that there is little evidence inflation is moving back toward the Fed’s 2% target.