CPI rose at 3.4% pace in August, raising odds of Fed rate hike this month

In August, consumer prices rose by 3.4% from the previous year, matching the growth seen in July but higher than economists had predicted. Gasoline prices, which are a significant factor in the inflation report, accounted for more than a third of this increase. The report, released by the Labor Department, suggests that the Federal Reserve may consider raising interest rates for the first time in over three years, likely next week, according to analysts.

Economists had forecast a 3.3% year-on-year rise in inflation for August. Despite the moderation in inflation since May, it remains significantly above the Federal Reserve's 2% target due to persistently high energy prices driven by the Iran conflict. Gasoline prices, up 27.4% from a year ago, have been a key contributor to this inflation.

Core CPI, which excludes volatile energy and food categories, rose 2.4% annually, as expected, though it increased 0.3% month-over-month, exceeding forecasts. Fed Chairman Kevin Warsh has emphasized the importance of controlling price pressures in his recent speeches. The CPI data release has increased the likelihood of a rate hike to 90%, up from 70% the previous day.

Rising energy prices, particularly diesel, could impact the economy, with diesel prices hitting a record $6.06 per gallon, up more than 60% from a year ago, and gasoline prices nearing $4.30 per gallon. However, experts note that the August data may not fully reflect the recent surge in gas and diesel prices, as the survey period ended before these price increases took effect.