U.S. August CPI accelerates, market expectations for rate hikes rapidly heat up

BlockBeats news, September 11 - U.S. consumer prices accelerated in August as gasoline costs rebounded after two consecutive months of decline, reinforcing financial market expectations that the Federal Reserve may raise interest rates next week. The Labor Department's Bureau of Labor Statistics said on Friday that the consumer price index rose 0.4% month-over-month last month, following a modest 0.1% increase in July. Over the 12 months through August, consumer inflation rose 3.4%, unchanged from July's gain. The seasonally adjusted core CPI rose 0.3% month-over-month in August, above the market expectation of 0.2%. Thursday's data had already shown that the August producer price index rose, with several key components posting strong gains, which feed into the calculation of PCE inflation.

Combined with last week's strong August employment report, this further boosted market expectations for a rate hike next week. After the release of the U.S. August CPI data, the market priced in about a 90% probability of a Fed rate hike next week. Some economists believe that price pressures will persist due to import tariffs (most recently on Canada, one of the largest U.S. trading partners). Discontent over rising prices, especially gasoline and food prices, has caused Trump's approval rating to plummet sharply and could cost his Republican Party control of the U.S. Congress in the November midterm elections. Federal Reserve Chairman Warsh said last month that if policymakers fail to gain the confidence they need that inflation is heading back toward the 2% target, the Fed still "has work to do."