U.S. August Inflation Rises 3.4%; Core Inflation Remains Sticky

【Financial News, New York = Reporter Lee Byung-chul】 The United States’ August consumer price inflation matched market expectations, but stronger-than-expected core inflation increased the likelihood of a Federal Reserve System (the Fed) rate hike. Inflationary pressure was broad-based as gasoline and other energy prices surged amid heightened tensions in the Middle East, while housing and vehicle prices also rose. The market-implied probability of a Fed rate hike next week soared to 90% immediately after the inflation data were released.
According to the Bureau of Labor Statistics (BLS) on the 11th local time, the August consumer price index (CPI) rose 0.4% from the previous month and 3.4% from the same month a year earlier. Both figures matched market expectations.
The problem was core inflation. Core CPI, which excludes volatile food and energy prices, rose 0.3% month on month—0.1 percentage point above the market forecast of 0.2%. Its year-on-year increase was 2.4%, in line with expectations.
This CPI report is the last major inflation indicator the Fed will review before the Federal Open Market Committee (FOMC) meets on the 16th and 17th. Market attention is focused on whether inflation has met the Fed’s criteria for raising interest rates.
The market quickly shifted toward a rate hike. According to the CME FedWatch Tool, the probability of a 0.25-percentage-point rate increase, which stood at about 70% before the CPI release, jumped to roughly 90% immediately afterward. The federal funds rate is currently 3.50% to 3.75% and has remained at that level throughout the year.
Energy was the biggest factor driving August inflation. Gasoline prices jumped 3.9% in a single month, accounting for more than one-third of the overall CPI increase. The energy index also rose 2.1% month on month and 16.3% year on year. The increases reflect renewed gains in international crude oil, gasoline and diesel prices as tensions in the Middle East intensify.
Inflationary pressure was not limited to energy. Housing costs rose 0.3% from the previous month, reversing a slowdown seen over the prior two months. Transportation services increased 0.5%, while used cars and trucks rose 0.4% and new-vehicle prices climbed 0.3%. Food prices increased 0.1%.
The possibility that the energy-driven inflation shock could spread to other goods and services is also adding to the Fed’s concerns.
Opinions within the Fed are already divided over a rate hike. Fed Chair Kevin Warsh recently emphasized his determination to bring inflation back to the Fed’s 2% target, saying, "We have work to do" if inflation fails to improve. The market interpreted the remark as leaving the possibility of a rate hike open.
Kathy Bostjancic, Nationwide’s chief economist, told CNBC, "Chair Warsh and other Fed officials signaled that they could hold rates steady only if disinflation continued, but today’s August inflation report did not show that outcome."




[email protected] Reporter Lee Byung-chul Reporter