Consumer prices climbed again in August, keeping pressure on the Federal Reserve ahead of its critical policy meeting next week.
The consumer price index rose a seasonally adjusted 0.4% for the month, putting the 12-month increase at 3.4%, the Bureau of Labor Statistics reported Friday.
Both readings came in line with the Dow Jones consensus, offering little relief to policymakers hoping inflation pressures would ease before the Fed’s vote.
Core CPI, which strips out volatile food and energy prices, posted a 0.3% monthly gain, coming in 0.1 percentage point higher than forecast.
The core annual rate held at 2.4%, matching estimates, but the monthly overshoot was enough to rattle market expectations heading into next week’s Federal Open Market Committee meeting.
Traders responded by ramping up bets on a quarter-point rate hike, with odds jumping to nearly 90% according to the CME Group’s FedWatch tracker of fed funds futures prices.
“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management.
Energy prices were the primary driver of headline inflation, with gasoline jumping 3.9% and accounting for more than one-third of the index’s total gain.
The energy index broadly rose 2.1% for the month, reflecting escalating tensions in the Middle East, and surged 16.3% from a year ago, with gasoline up 27.4% and fuel oil up 52% on a 12-month basis.
Shelter costs rose 0.3%, reversing two months of moderation, while transportation services climbed 0.5%, used cars and trucks rose 0.4%, and new vehicle prices gained 0.3%.
Food prices edged 0.1% higher on the month, with food at home holding flat and the overall food index rising 2.7% annually.
Stock market futures surged despite the report as oil prices fell sharply in morning trade, while the policy-sensitive 2-year Treasury note jumped 4.6 basis points to 4.594%.
Chairman Kevin Warsh has repeatedly expressed commitment to returning inflation to the Fed’s 2% target, warning recently that if numbers don’t improve, “we have work to do.”
His remarks were widely interpreted as laying the groundwork for a hike, though several key Fed officials in recent weeks have urged a more patient approach to further tightening.
“Chair Warsh and others signaled that interest rates can remain on hold only if disinflation continues and today’s August report did not deliver that,” said Kathy Bostjancic, chief economist at Nationwide.
Bostjancic added that “the renewed march higher in oil, gasoline and diesel prices add to concerns that higher energy prices could spill over to other goods and services and inflation expectations.”
Nationwide now officially expects the Fed to deliver a quarter-point rate hike at next week’s meeting, which concludes Wednesday with a policy vote.
The fed funds rate currently sits in a range of 3.5% to 3.75%, where it has remained throughout all of 2026, making any increase a significant shift in the pace of monetary policy.
