By Lucia Mutikani
WASHINGTON, Sept. 11 (Reuters) — U.S. consumer prices rose at a faster pace in August, helped by a rebound in gasoline costs following two consecutive monthly declines. The report strengthened market expectations that the Federal Reserve will increase interest rates at its next meeting.
The Consumer Price Index increased 0.4% in August after rising 0.1% in July, the Labor Department’s Bureau of Labor Statistics said Friday. Over the 12 months ending in August, consumer inflation advanced 3.4%, matching July’s annual rate.
Economists surveyed by Reuters had forecast a 0.4% monthly increase and a 3.4% year-over-year gain. Excluding volatile food and energy prices, the CPI rose 0.3% in August after increasing 0.2% in July. Core CPI, which excludes those categories, grew 2.4% from a year earlier, down from 2.5% in July.
The Federal Reserve uses Personal Consumption Expenditures price indexes to gauge inflation against its 2% target.
The government reported Thursday that the Producer Price Index rose in August, with sharp increases in several key components used in calculating PCE inflation. Combined with last week’s strong employment report, the data increased expectations for a rate increase next week.
The likelihood of a rate hike had previously diminished after Fed Governor Christopher Waller said at a Reuters NEXT Newsmaker event the prior week that he was inclined to support holding rates steady if incoming data showed inflationary pressures easing.
Oil prices moved back above $100 a barrel on Thursday, while diesel prices reached record highs, reinforcing expectations that inflation would remain elevated and spread more broadly.
Growing Public Frustration Over Inflation
Some economists attributed continuing price pressures to tariffs on imports, including the latest measures against Canada, one of the United States’ largest trading partners.
Public frustration over higher prices, particularly for gasoline and food, has sharply reduced President Donald Trump’s approval ratings and could jeopardize Republicans’ control of Congress in the November midterm elections.
Following Thursday’s PPI release, economists’ estimates for August’s core PCE price index ranged from a 0.15% monthly gain to 0.28%. Core PCE inflation increased 0.2% in July. Forecasts for its year-over-year rate ranged from 3.2% to 3.3%, compared with 3.3% in July.
The August PCE report will incorporate methodological changes that some economists expect could reduce the measured core inflation rate by a couple of basis points.
Before the CPI release, financial markets assigned roughly a 70% probability to a 25-basis-point rate increase at the Fed’s Sept. 15-16 policy meeting, according to CME’s FedWatch tool. The central bank’s benchmark overnight interest rate currently stands in a 3.50%-3.75% range.
Fed Chairman Kevin Warsh said last month that the central bank would “have work to do” if policymakers failed to gain the confidence that inflation was moving toward 2%.
Trump has nevertheless pressed the Fed to lower rates, recently posting on social media, “LOWER THE RATE OR I’LL STOP TRADING WITH COUNTRIES WITH WHICH WE HAVE A DEFICIT.” Economists have linked the surge in yields on long-term U.S. government bonds to what they described as political pressure on the central bank. Some expected the Fed to raise rates next week to reinforce its independence.
