The U.S. Bureau of Labor Statistics released data on inflation on Friday, September 11th, showing that the Consumer Price Index (CPI) rose by 0.4% in August compared to the previous month, and by 3.4% compared to the same period last year. These figures were in line with the general expectations of economists surveyed by Dow Jones. The report could be a key factor for the Federal Reserve to decide whether to raise interest rates at its meeting next week.
Excluding the more volatile prices of food and energy, the core CPI rose by 0.3% in August compared to the previous month, exceeding expectations by 0.1 percentage point, with an annual increase of 2.4%, in line with expectations.
Energy prices drove the overall inflation data higher. The Bureau of Labor Statistics data showed that energy prices increased by 2.1% in August compared to the previous month, with a year-on-year increase of 16.3%. Gasoline prices, in particular, rose by 3.9% compared to the previous month, contributing to over a third of the increase in the energy index, and rising by 27.4% compared to the same period last year. The increase in oil prices was mainly influenced by the escalating tensions in the Middle East.
Food prices increased by 0.1% in August compared to the previous month, with a 2.7% increase from a year ago. Another important indicator, housing costs, continued to rise in August, increasing by 0.3% compared to the previous month and 3% compared to the same period last year. Transport service prices rose by 0.5% month-on-month and 2.4% year-on-year. The cost of new cars increased by 0.3% compared to the previous month and 0.6% compared to the previous year, while the prices of used cars and trucks increased by 0.4% compared to the previous month but decreased by 2.3% compared to the same period last year.
This report is the last major inflation indicator that the Federal Reserve received before its meeting next Wednesday, September 16th, when the Fed will vote on key interest rates.
According to CNBC, Kathy Bostjancic, Chief Economist at Nationwide, stated, “Chair Powell and other officials have previously signaled that rates can only stay the same if inflation continues to cool down, and today’s release of the August inflation report did not meet that condition. Furthermore, the rise in oil, gasoline, and diesel prices has raised new concerns: the increase in energy prices may affect prices of other goods and services, and raise inflation expectations.”
Interest rate futures show that the market currently expects a 90% probability of the Fed raising rates by 25 basis points at the next meeting, higher than the approximately 70% probability before the release of this report.