US August CPI Rises 3.4% YoY as Hotter Core Inflation Fuels Fed Rate Hike Bets

TradingKey - US August inflation data broadly aligned with market expectations, but core price pressures persist. Coupled with a recent rebound in energy prices, market focus on the Federal Reserve's policy decision next week has further intensified.

Data released by the US 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, rose 0.3% month-over-month, exceeding the market expectation of 0.2% and marking the largest single-month gain since April; it grew 2.4% year-over-year, moderating from July's 2.5% but remaining in line with expectations.

The energy price index rose 2.1% month-over-month in August, with a year-over-year gain of 16.3%. Among components, gasoline prices rose 3.9% for the month, contributing over one-third of the headline CPI increase. Gasoline prices, which had weakened for two consecutive months prior, bounced back, making energy a major driver pushing up US consumer prices once again.

This makes this CPI report particularly crucial for the Federal Reserve, as it is the final key inflation indicator available before the Fed's policy meeting next week. Meanwhile, previously released August employment data and the PPI also indicated that the US economy and price pressures retain a degree of resilience. Consequently, the market is reassessing whether the Fed needs to tighten monetary policy further.

In fact, the recent rapid surge in energy prices is increasing inflation uncertainty. Brent crude has reclaimed the $100 per barrel mark, which, combined with ongoing tensions in the Middle East and energy supply risks, means US inflation could face renewed upward pressure in the coming months. If energy costs remain elevated, even as core goods and services prices gradually cool, it could restrict the pace at which headline inflation returns toward the 2% target.

Federal Reserve officials had previously remained cautious regarding interest rate policy, with some emphasizing the need to continue observing inflation and employment data. However, following the sequential release of CPI, PPI, and labor market figures, market expectations for a rate adjustment by the Fed next week have warmed up noticeably.

CME FedWatch data shows 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 US Dollar Index spiked briefly before retreating below 99, while the 10-year US Treasury yield similarly rose first before declining. Gold was initially suppressed by rising rate-hike expectations, briefly dropping below $4,300 per ounce for the first time since September 2, but quickly recovered lost ground, approaching the $4,400 mark.

Source: TradingView