US August CPI Rises 3.4% YoY, 0.3% MoM Beats Expectations as Fed Rate Hike Expectations Rise

TradingKey - Overall U.S. inflation data for August was in line with market expectations, but core price pressures persist. Compounded by the recent rebound in energy prices, market attention toward the Federal Reserve's policy decision next week has intensified further.

Data released by the U.S. Bureau of Labor Statistics on September 11 showed that the Consumer Price Index (CPI) rose 0.4% month-over-month in August and 3.4% year-over-year, both matching market expectations. Core CPI, which excludes food and energy prices, increased 0.3% month-over-month, higher than July's 0.2%, and rose 2.4% year-over-year, slowing from 2.5% in July but still meeting expectations.

In August, the energy price index rose 2.1% month-over-month and reached a 16.3% year-over-year increase, with gasoline prices surging 3.9% in a single month, contributing more than a third to the overall CPI rise. Gasoline prices, which had weakened for the previous two consecutive months, rebounded, making energy once again a major driver pushing up U.S. consumer prices.

This makes the latest CPI report particularly crucial for the Federal Reserve, as it is the final key inflation indicator available before next week's policy meeting. Previously released August employment data and the PPI also indicated that the U.S. economy and price pressures remain resilient. Consequently, the market is reassessing whether the Fed will need to tighten monetary policy further.

In fact, the recent rapid rise in energy prices is heightening inflation uncertainty. Brent crude reclaimed the $100 per barrel mark, which, combined with persistent Middle East tensions and energy supply risks, implies that U.S. inflation could face renewed upward pressure in the coming months. If energy costs remain elevated, it could limit the pace at which headline inflation cools toward the 2% target, even as core goods and services prices gradually moderate.

Fed officials had previously remained cautious regarding rate policy, with some emphasizing the need to monitor incoming inflation and employment data. However, following the release of the CPI, PPI, and jobs figures, market expectations for a Fed rate adjustment next week have heated up significantly.

Data from CME FedWatch showed that traders further raised their bets on policy tightening following the CPI release, generally raising the probability of a Fed rate hike next week to around 90%.

Following the data release, the U.S. Dollar Index spiked briefly before retreating below 99, while the 10-year U.S. Treasury yield similarly rose before falling back. Gold was initially suppressed by rising rate-hike expectations, briefly dipping below $4,300 per ounce for the first time since September 2, but quickly recovered lost ground to approach near $4,400.

Source: TradingView