US inflation held steady at 3.4% in August as high fuel prices persist

In August, U.S. consumer prices experienced a notable acceleration, with the cost of gasoline rebounding after two consecutive monthly declines. This increase in gasoline prices contributed to the broader inflationary pressures, leading the Federal Reserve to anticipate potential interest rate hikes. The Consumer Price Index rose by 0.4% in August, following a 0.1% increase in July, according to the Bureau of Labor Statistics.

Over the past year, consumer inflation had climbed by 3.4%, maintaining the same rate as the previous month. Economists had predicted a 0.4% rise in the CPI for the month and a 3.4% increase year-over-year. When excluding food and energy costs, the core CPI increased by 0.3% in August, compared to a 0.2% rise in July. The core CPI saw a year-over-year rise of 2.4% in August, down from 2.5% in July.

The U.S. central bank relies on the Personal Consumption Expenditures price index to gauge inflation, aiming for a 2% inflation target. Additionally, the Producer Price Index saw a significant increase in August, driven by steep rises in key components affecting PCE inflation calculations. This data, combined with recent employment figures, bolstered the possibility of a rate increase in the upcoming week.

Financial markets had previously priced in a 70% chance of a 25-basis-point rate hike at the Federal Reserve's upcoming policy meeting on September 15-16, with the current benchmark interest rate ranging between 3.50% and 3.75%. Despite concerns over inflation, President Donald Trump has urged the Fed to lower interest rates, threatening to halt trade with countries facing a trade deficit.

Economists attribute the surge in long-term U.S. government bond yields to political intimidation, prompting speculation that the Fed may tighten policy to demonstrate its independence.