In August, the consumer price index (CPI) rose by a seasonally adjusted 0.4%, leading to a 12-month increase of 3.4%, as reported by the Bureau of Labor Statistics. This aligns with Dow Jones expectations. The core CPI, excluding food and energy, increased by 0.3%, slightly above forecasts, with an annual rate of 2.4%.
The report serves as the final major inflation indicator before the Federal Reserve's policy meeting next week, where a decision on interest rates will be made. Following the report, traders significantly raised their bets on a quarter-point interest rate hike, with odds climbing to about 90%.
The rise in energy prices, particularly a 3.9% jump in gasoline, was a major contributor to the headline CPI increase. Additionally, shelter costs rose by 0.3%, and transportation services saw a 0.5% increase.
While markets had anticipated a nearly 70% chance of a rate hike prior to the CPI release, differing opinions within the Federal Open Market Committee suggest that the decision could hinge on minute changes in inflation data. Chairman Kevin Warsh emphasized the need to address inflation, indicating a potential rate hike, while others have suggested a more cautious approach.
Nationwide's chief economist, Kathy Bostjancic, noted that the August report did not show the disinflation needed to keep rates on hold, and the firm now expects a quarter-point hike next week. Currently, the Fed funds rate is set between 3.5% and 3.75%, where it has remained throughout 2026