According to the latest data from the Bureau of Labor Statistics released Wednesday morning, consumer prices rose in August as soaring oil prices contributed to a rise in headline inflation.
The consumer price index (CPI) rose 0.6% from last month and 3.7% from a year earlier in August, accelerating from July’s 0.2% monthly increase and to the annual price increase of 3.2%.
According to Bloomberg data, the year-over-year increase was slightly higher than economists’ forecasts of a 3.6% annual jump.
Most of these increases were driven by a significant increase in energy prices. Oil prices hit new year-to-date highs on Tuesday, with West Texas Intermediate (CL=F) closing just below $89 a barrel. Brent crude futures (BZ=F) are trading above $92 a barrel, the highest oil price levels since November 2022.
On a core basis, which excludes the more volatile costs of food and gas, prices in August rose 4.3% from last year – a slowdown from the 4.7% annual increase seen in July, according to Bloomberg data. Monthly core prices rose 0.3%, slightly higher than economists’ expectations of a 0.2% month-over-month increase and also higher than July’s 0.2% monthly increase.
The energy index fell 3.6% for the 12 months ending in August on an unadjusted basis, although prices rose 5.6% on a seasonally adjusted monthly basis after rising just 0.1% in July.
Gas prices rose 10.6% in August following a 0.2% increase in the previous month.
Within core inflation, rental prices continued to rise. The rent and property value index grew 0.5% and 0.4% month-on-month, respectively. Landlord equivalent rent is the hypothetical rent a homeowner would pay.
The safe haven index was the biggest factor in the monthly increase in core inflation, up 0.3% month-on-month and 7.3% over the past year. However, both measures are down from July’s 7.7% annual gain and 0.4% monthly jump.
Other indices that increased in August include motor vehicle insurance, medical care and personal care, BLS noted.
Indices related to accommodation away from home, recreation, and used cars and trucks were among those declining during the month. Monthly prices for used cars and trucks fell another 1.2% in August after seeing prices fall 1.3% in July.
The food index increased 4.3% in August compared to last year, with food prices rising 0.2% from July to August. The household food index rose 0.2% over the month, after rising 0.3% in July.
The index for meat, poultry, fish and eggs increased 0.8% in August, while the index for pork increased 2.2%. According to the BLS, during the month the index of other foods consumed at home increased by 0.2%, that of cereals and baked goods by 0.5%.
Egg prices, however, fell another 2.5% month-on-month, after falling 2.2% in July and 7.3% in June.
US stocks fell in early trading following the data release. Treasury yields jumped about 9 basis points to around 4.3%.
To walk or not to walk?
Inflation remained significantly above the Federal Reserve’s 2% target. This, combined with upward pressure on oil and a labor market that, while weakening, is still tight, increases concerns that the Federal Reserve may continue to raise interest rates later this year.
Read more: What the Fed’s latest rate hike plan means for bank accounts, CDs, loans and credit cards
But markets still expect the central bank to suspend its hikes at its meeting at the end of the month. After the data was released, markets were pricing in a roughly 95% chance that the Federal Reserve will keep rates unchanged at its September 20 policy meeting, according to CME Group data.
The central bank raised rates by another 0.25% in July, after pausing its aggressive rate hike cycle in June.
“In our view, the economy maintains decent momentum but shows signs of slowing, and so the Federal Reserve is likely to pause next week and await additional data for its November meeting,” Brian Pietrangelo, senior vice president and administrator delegate of investment strategy at Key Private Bank, wrote in a reaction to the report.
Seema Shah, chief global strategist at Principal Asset Management, agrees, but warns that a further rate hike is still possible before the end of the year: “The inflation data is probably not enough to sway the demand for inflation.” Fed next week toward a hike, but it hasn’t quite clarified the issue between a November pause and a hike.”
“The rise in stocks shouldn’t be surprising given the recent rise in energy prices and the Fed will likely look at the numbers… for now,” the economist continued. “But the general expectation was that core inflation would remain stable, if not slow, this month, so the upside surprise likely leaves the Fed with a bad taste in its mouth and leaves it wondering whether it still has a lot of work to do. Do.”
Several economists said the slowdown in housing prices is a good sign for the central bank, but that the higher increases seen in service prices and core inflation will likely “keep the Fed on the defensive,” Eugene noted. Aleman, senior economist at Raimondo Giacomo.
“The decline in core CPI (excluding food and energy prices) year over year also bodes well for the Fed,” Aleman said. “However, the decision for next week’s FOMC meeting will not be one to be taken lightly, especially as core CPI was higher than expected and as oil prices continued to rise in September.”
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Alessandra’s channel is a senior reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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