Consumer prices edged higher in August as a surge in oil prices contributed to an uptick in headline inflation, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) rose 0.6% over last month and 3.7% over the prior year in August, an acceleration from July's 0.2% monthly increase and 3.2% annual gain in prices.
The year-over-year increase was slightly higher than economist forecasts of a 3.6% annual jump, according to data from Bloomberg.
A significant rise in energy prices drove the bulk of those increases. Oil prices hit new year-to-date highs on Tuesday with West Texas Intermediate (CL=F) closing just below $89 per barrel. Brent crude futures (BZ=F) sat above $92 per barrel — the highest levels in oil prices since November 2022.
On a "core" basis, which strips out the more volatile costs of food and gas, prices in August climbed 4.3% over 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 economist expectations of a 0.2% month-over-month gain and also higher than July's 0.2% monthly rise.
The energy index decreased 3.6% for the 12 months ending in August on an unadjusted basis, although prices increased 5.6% on a seasonally adjusted month-over-month 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, rent prices continued to surge. The index for rent and owners' equivalent rose 0.5% and 0.4% on a monthly basis, respectively. Owners' equivalent rent is the hypothetical rent a homeowner would pay.
The shelter index was the largest factor in the monthly increase of core inflation, increasing 0.3% month-over-month and 7.3% over the last year. Still, both of those measures were down compared to July's 7.7% annual gain and 0.4% monthly jump.
Other indexes that rose in August included motor vehicle insurance, medical care, and personal care, BLS noted.
The indexes for lodging away from home, recreation, and used cars and trucks were among those that decreased over the month. The monthly prices for used cars and trucks dropped another 1.2% in August after seeing prices fall 1.3% in July.
The food index increased 4.3% in August over the last year, with food prices rising 0.2% from July to August. The index for food at home increased 0.2% over the month, after rising 0.3% in July.
The index for meats, poultry, fish, and eggs rose 0.8% in August as the index for pork increased 2.2%. The index for other food at home increased 0.2% over the month and the index for cereals and bakery products rose 0.5%, according to the BLS.
Egg prices, however, fell another 2.5% month-over-month after dropping 2.2% in July and 7.3% in June.
US stocks edged lower in early trading following the release of the data. Treasury yields jumped about 9 basis points to trade around 4.3%.
To hike or not to hike?
Inflation has remained significantly above the Federal Reserve's 2% target. That, along with the upward pressure in oil and a labor market that, while softening, is still tight, adds to concerns that the Federal Reserve could continue to raise interest rates later this year.
But markets still expect the central bank to pause its hikes at its meeting later this month. Following the release of the data, markets were pricing in a roughly 95% chance the Federal Reserve keeps rates unchanged at its Sept. 20 policy meeting, according to data from the CME Group.
"In our view, the economy maintains decent momentum but is showing signs of slowing, and thus the Federal Reserve is likely to pause next week and wait for additional data to unfold for the November meeting," Brian Pietrangelo, senior vice president and managing director of investment strategy at Key Private Bank, wrote in a reaction to the report.
Seema Shah, chief global strategist at Principal Asset Management, agreed but warned one more rate hike is still possible before the end of the year: "The inflation print likely is not enough to tilt next week’s Fed call towards a hike, yet it also hasn’t entirely cleared up the question of a November pause vs. hike."
"The rise in headline should come as no surprise given the recent run-up in energy prices and the Fed will likely look through the number… for now," the economist continued. "But the general expectation was that core inflation would remain stable, if not decelerate this month, so the upside surprise probably leaves the Fed with a bad taste in its mouth and keeps it wondering if it still has more work to do."
Multiple economists said the slowdown in shelter prices is a good sign for the central bank, but that the higher increases seen in the prices of services and core inflation will likely "keep the Fed in a defensive stance," noted Eugenio Aleman, senior economist at Raymond James.
"The decline in core CPI (excluding food and energy prices) on a year-over-year basis is also a good omen for the Fed," Aleman said. "However, the decision for next week’s FOMC meeting will not be one to take lightly, especially because core CPI was higher than expected and because oil prices have continued to increase in September."
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