US Inflation Strengthens the Case for a Fed Rate Hike

US inflation picked up in August, putting the Federal Reserve’s next move firmly in focus. Reuters reported that the figures released on Friday strengthened expectations for higher interest rates, although economists are not unanimous. Reuters, 11 September.

The Consumer Price Index rose 0.4% from July, compared with a 0.1% increase in the previous month. Annual inflation held at 3.4%. The monthly headline figure matched economists’ forecasts.

Petrol was a major driver: prices rose 3.9%, accounting for more than a third of the monthly increase. Shelter costs also accelerated, while grocery prices were unchanged.

Core inflation, which excludes food and energy, rose 0.3% over the month, above the 0.2% increase economists expected. But the annual core rate eased to 2.4% from 2.5%. That distinction matters: the monthly reading became firmer even as the year-on-year measure cooled. Official CPI data.

The report adds to the debate over whether recent energy-price pressures will spread more widely through the economy. Reuters said many economists now expect the Fed to raise borrowing costs, but others still see room to hold.

Oxford Economics, for example, expects a milder August reading in core PCE, a different inflation measure closely watched by the Fed. Its analysts believe that could allow policymakers to leave rates unchanged. That PCE estimate is a forecast, not a released result. Reuters: the Fed debate.

The decision comes at the Fed’s 15–16 September meeting. Until then, the important distinction is between markets preparing for a hike and the central bank actually delivering one. Fed meeting calendar.

Cover: Marriner S. Eccles Building, Washington, DC. Britt Leckman / Official Federal Reserve Photo, 29 March 2011; public domain, via Wikimedia Commons. File photograph, cropped for display. Photo source.