Regarding the CPI report, US inflation remained stubbornly high in August, keeping pressure on the Federal Reserve just days before its next policy meeting. Consumer prices rose 3.4% from a year earlier, matching expectations, while monthly inflation accelerated.
What Changed in August
- Headline CPI rose 0.4% month over month, up from 0.1% in July
- Annual inflation stayed at 3.4%
- Core CPI rose 0.3%, hotter than the 0.2% expected
- Annual core inflation eased slightly to 2.4% from 2.5%
Energy was a major driver. Gasoline prices jumped 3.9% as the Iran war pushed oil higher, while airfare rose 2.7% and shelter costs increased 0.3%. Computer and accessory prices also climbed 3.8% in one month and are now 8.4% higher than a year ago, partly reflecting strong AI-related chip demand.
Fed Hike Expectations Rise
The hotter core reading strengthened expectations that the Fed could raise rates at its September 15-16 meeting.
Markets are now pricing in roughly an 85% to 90% chance of a 25-basis-point hike, up sharply from around 50% a month ago. The 2-year Treasury yield jumped above 4.59%, while the 10-year yield remained close to 5%.
The CPI report follows other inflationary signals, including a 0.4% rise in producer prices in August and oil prices above $100.
Stocks Still Rebound
Despite the inflation pressure, US stocks moved higher as oil prices fell during the session. The S&P 500 gained around 1%, while the Nasdaq rose more than 1%, helped by strength in technology shares.
What investors are watching: The key question is no longer whether inflation is falling quickly enough. It is whether the Fed believes it needs to start tightening again. A September hike now looks increasingly likely, and markets will focus closely on whether policymakers signal that more than one rate increase could follow.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
Related: European Central Bank Set to Raise Rates: Here is the reason
