U.S. inflation rises in August as gas prices jump, prompting Fed rate-hike expectations
August data show overall consumer prices increased, driven by a near 4% rise in gasoline and higher costs for travel and services, leading markets to anticipate a Federal Reserve rate increase in September.
U.S. consumer prices rose in August, pushed higher by a 3.9% month-over-month increase in gasoline and gains in airline tickets, hotel rooms and auto-repair costs, according to the Labor Department's latest report. Core inflation, which excludes food and energy, climbed 0.3% from July, marking the largest monthly rise since April, though it remains down from a year ago.
"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.
The broader price surge adds pressure on Federal Reserve officials ahead of their September meeting, with market pricing an over 80% chance of a rate hike. The central bank left rates unchanged in July, but three board members voted for a quarter-point increase at that session.
Gasoline averaged $4.30 per gallon, up more than 7% from the previous month and 27% higher than a year earlier, a rise linked to renewed conflict in the Middle East and refinery constraints. Higher diesel prices, now above $6 per gallon, are expected to raise shipping costs for groceries and other goods. Airline fares rose 2.7% month-over-month and are up more than 23% from a year ago, while hotel rates increased 2.4%.
Prices for appliances, wireless phone services and car repairs also climbed, whereas apparel and grocery items were broadly unchanged from July, offering limited relief to consumers. Economists note that while some of the recent inflationary pressure stems from what may be temporary shocks, such as geopolitical tensions and tariff effects, the persistence of higher energy costs could embed price increases more deeply across the economy.
The Treasury has accelerated purchases of government bonds to keep longer-term yields lower, but the 10-year Treasury yield reached a near three-year high of 4.9% before easing slightly. Political leaders have highlighted the inflation issue ahead of upcoming midterm elections, with proposals for direct payments to adults and statements that fuel prices may not ease until after the vote.