US consumer inflation hit a three-month high in August as energy prices rose, while the core measure unexpectedly accelerated, likely adding pressure on the Federal Reserve to raise interest rates next week.
The consumer price index rose 0.4% month on month, faster than July's 0.1% increase and marking the fastest pace since May, Bureau of Labor Statistics data showed Friday. The latest print matched the Bloomberg-polled consensus estimate.
Energy prices rose 2.1% on a monthly basis in August following two consecutive months of negative prints, with fuel oil surging 10% and gasoline rising 3.9%, the CPI report showed. The food index edged up at a steady pace of 0.1%.
Crude oil prices were retreating on Friday, but remain on track for their second consecutive weekly gains amid tensions in the Middle East.
Core inflation, which excludes the volatile food and energy components, accelerated on a monthly basis to a four-month high of 0.3%, while Wall Street projected an unchanged print of 0.2%.
"Although headline inflation met expectations, core inflation came in slightly hotter than anticipated, ending a three-month run of softer readings," Thomas Feltmate, senior economist at TD Economics, said in a report. "The pickup was concentrated in non-housing services, which posted its strongest monthly gain since January and is still running north of 3% on a twelve-month basis -- underscoring the stickiness in this component of inflation."
Interest rate traders are now pricing in an 86% probability that the Fed will raise the benchmark lending rate by 25 basis points on Wednesday, up from 72% a day ago, according to the CME FedWatch tool. The odds pointing to another Fed pause fell to 14% from 28%.
"The stronger-than-expected reading on core inflation leaves the Fed with little room to remain on the sidelines," Feltmate said.
On an annual basis, headline inflation held steady at 3.4%, as expected. The annual core measure eased to 2.4% from 2.5%, also in line with projections, with the latest print marking the lowest reading since March 2021.
On Thursday, official data showed US producer prices rose at the fastest pace in three months in August amid higher fuel costs.
"With oil prices up significantly in recent weeks, again hovering around $100 per-barrel and underlying price pressures in services remaining sticky, a rate hike at next week's meeting now appears all but certain," Feltmate said.
