US Core CPI Picks Up, Keeping Another Fed Hike in Play This Year

Underlying US inflation ran at a faster-than-expected monthly pace in August, leaving the door open for additional interest-rate hikes from the Federal Reserve.

The so-called core consumer price index, which excludes food and energy costs, advanced 0.3% from July, the first acceleration in six months, Bureau of Labor Statistics data showed Wednesday. From a year ago, it increased 4.3%, in line with estimates and marking the smallest advance in nearly two years.

Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure rose 0.6% from the prior month, the most in over a year, and 3.7% from a year ago, reflecting higher energy prices. Gasoline costs accounted for over half of the advance in the overall measure in August, according to BLS.

The report adds to concerns that the renewed momentum in the economy is reigniting price pressures. While Fed officials have been growing more optimistic they can tame inflation without a recession, a reacceleration in price growth could force them to push interest rates even higher — with the risk of sparking a downturn in the process.

The CPI is one of the last major reports the Fed will see before its meeting next week, in which policymakers are largely expected to hold rates steady. Chair Jerome Powell said last month interest rates will stay high and could rise even further should the economy and inflation fail to cool.

Treasury yields jumped, while the S&P 500 index futures slid and the dollar index rose. Traders still expect the Fed to hold rates steady next week while bets for a November hike were at about 50%.

Indicator Actual change Median estimate
CPI (MoM) +0.6% +0.6%
Core CPI (MoM) +0.3% +0.2%
CPI (YoY) +3.7% +3.6%
Core CPI (YoY) +4.3% +4.3%