August CPI Hits 3.4% Annual Rate, Shifting Fed Expectations

The US consumer price index rose by 0.4% in August. The annual inflation rate reached 3.4%. Core inflation, which excludes food and energy, jumped more than economists predicted. This data arrived before the latest surge in oil prices due to Middle East conflict.

Gasoline prices increased by 3.9% during the month. This single category accounted for over one-third of the total monthly price increase. Shelter costs rose by 0.3%. Food prices went up by 0.1%, with restaurant meals rising by 0.3% while grocery prices remained flat.

Fed rate hike probability jumps to 90%

Market odds for a Federal Reserve interest rate hike at the next meeting rose to nearly 90%. The probability of a follow-on hike in October reached almost 60%. The Fed’s next policy meeting is scheduled for Tuesday and Wednesday. Economists cite the upside surprise in core CPI as the primary driver.

Energy costs drive consumer pressure

US crude oil traded around $100 per barrel on Friday. International Brent crude traded at about $105 per barrel. These levels are approximately 20% higher than mid-August prices. The nationwide average for diesel fuel hit $6 per gallon for the first time. The national average gas price is more than 40% higher than before the Iran conflict.

Tech prices rise alongside energy

Airline fares increased by 2.7% in August. Communication services prices rose by 2.3%. The category for computer software and accessories is up 25.4% over the last year. This increase follows price hikes by major technology firms citing high demand for memory and storage.

Real average hourly earnings decreased by 0.1% from July to August. Average hourly earnings fell by 0.3% compared to a year ago. The S&P 500 index jumped almost 1% on the data. The Nasdaq Composite rose by 1.3%. GN auto markets/bonds: interest rates notes that the 30-year fixed mortgage rate rose above 7%.