Consumer prices rose at a 3.4% annual rate last month, the same pace as July, according to the latest Consumer Price Index from the Bureau of Labor Statistics.
That likely strengthens the case for a Federal Reserve rate hike to tame inflation and prevent price increases from becoming more entrenched.
Inflation has accelerated since the war with Iran began, and central bankers are watching to determine whether price pressures are spreading through the economy. Fed officials are set to meet next week to decide the next move on interest rates.
On a monthly basis, prices rose 0.4%, an acceleration from July’s 0.1% rate. Gasoline prices, up 3.9%, accounted for a third of the monthly price increase.But for the Fed, the most worrisome aspect of August’s inflation report is likely the evidence that inflation has spread beyond the pump. When stripping out food and energy costs, so-called core inflation rose 2.4% in the 12 months ending in August, down from 2.5% in July. On a monthly basis, core rose 0.3%.After the release of Friday’s report, traders boosted the odds of a rate hike to 90% from 70% the day before, according to CME FedWatch. Central bank officials convene on Tuesday and Wednesday next week to determine their next move on interest rates.
The prospect of higher inflation is also weighing on Americans’ attitudes toward the economy.
The University of Michigan’s consumer sentiment survey showed a sharp 7.5% drop early this month, marking the second-lowest reading recorded since the inception of the gauge more than 70 years ago.
Sentiment throughout this year has languished at unusually low levels, below anything seen during the Great Recession, 9/11 and foreign wars.
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