U.S. core CPI tops forecasts, bolstering case for rate hike

Goods prices, excluding food and energy commodities, edged up 0.1 per cent, led by increases in prices for new and used vehicles. Photo by Scott Olson/Getty Images

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A key gauge of United States consumer prices rose by more than expected last month, bolstering the case for Federal Reserve officials to raise interest rates next week.

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The consumer price index, excluding food and energy, climbed 0.3 per cent in August from a month earlier, according to Bureau of Labor Statistics data out Friday. The median estimate in a Bloomberg survey called for a 0.2 per cent increase. On an annual basis, it advanced 2.4 per cent.

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Futures showed investors priced in a rate hike next week as a near certainty following the release, and put a high likelihood on a second increase before the end of the year.

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The report suggests inflation made little progress toward the Fed’s goal last month amid ongoing pressures from the Iran war, tariffs and the data centre buildout. The U.S. central bank will likely see the numbers as tipping the scale in favour of the first rate increase in three years after some officials suggested the Sept. 15-16 decision could come down to what the figures showed.

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“The renewed march higher in oil, gasoline and diesel prices add to concerns that higher energy prices could spill over to other goods and services and inflation expectations,” nationwide chief economist Kathy Bostjancic said in a note. “As such we are now looking for the Fed to raise rates” next week, she said.

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Fed Chairman Kevin Warsh has been reluctant to tip his hand on the central bank’s next move, but in a speech last month he said the Fed would “have work to do” if it could not “be confident that underlying inflation is moving to our objective, clearly and at sufficient speed.”

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The U.S. economy, meanwhile, is contending with resurgent energy prices as the Middle East and Russia-Ukraine wars hit supplies. This week, oil prices pushed above US$100 a barrel and U.S. retail diesel prices rose to a record.

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Friday’s report showed the overall CPI was up 0.4 per cent from the prior month and 3.4 per cent from a year earlier. Energy prices rose 2.1 per cent in August, while grocery prices were little changed and owners’ equivalent rent, the largest component of the CPI, advanced 0.2 per cent.

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Record Increases

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Services prices excluding energy and rents rose 0.5 per cent, boosted by a record increase in wireless telephone services, according to data compiled by Bloomberg. Hotel and motel rates and airline fares also posted strong advances.

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Goods prices, excluding food and energy commodities, edged up 0.1 per cent, led by increases in prices for new and used vehicles.

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The report also contained signs of ongoing pressures from the data centre buildout: Computer software and accessories prices rose a record 25.4 per cent from a year earlier, while prices of computers, peripherals and smart home assistants advanced a near-record 8.4 per cent.