Prices across a wide range of goods and services continued to rise in August, putting fresh pressure on the Federal Reserve ahead of its policy meeting next week.
The consumer price index climbed a seasonally adjusted 0.4% for the month, bringing the 12-month increase to 3.4%, according to the Bureau of Labor Statistics, with both readings matching the Dow Jones consensus.
Core CPI, which strips out volatile food and energy prices, rose 0.3% for the month, coming in 0.1 percentage point above forecasts, while the annual core rate held at 2.4%.
The August report is the final major inflation indicator the Fed will consider before its policy meeting concludes on Wednesday with a vote on its benchmark interest rate.
Traders responded sharply to the data, pushing the probability of a quarter-point rate hike by the Federal Open Market Committee 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 the headline figure, with gasoline jumping 3.9% and accounting for more than one-third of the index’s overall monthly gain.
The energy index rose 2.1% broadly, lifted by escalating tensions in the Middle East, and surged 16.3% on a 12-month basis, with gasoline up 27.4% and fuel oil surging 52% over the same period.
Shelter costs climbed 0.3% after moderating over the prior two months, while transportation services rose 0.5%, used cars and trucks gained 0.4%, and new vehicle prices edged up 0.3%.
Food prices added just 0.1% for the month, with food at home costs holding flat, though the broader food index was up 2.7% on an annual basis.
Chairman Kevin Warsh has repeatedly expressed his commitment to returning inflation to the Fed’s 2% target, warning recently that “we have work to do” if the numbers fail to improve.
“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 expects the Fed to deliver a quarter-point rate hike at next week’s meeting, which would move the fed funds rate above its current range of 3.5% to 3.75%, where it has remained throughout 2026.
Stock market futures still surged following the report as oil prices fell sharply in morning trade, while the policy-sensitive 2-year Treasury note rose 4.6 basis points to 4.594%.