US core inflation surprise strengthens Fed rate hike case

A key measure of US consumer prices rose more than expected in August, increasing the likelihood that the Federal Reserve will raise interest rates next week. Core CPI climbed 0.3% month-on-month (forecast: 0.2%) and 2.4% annually, per Bureau of Labor Statistics data cited by Bloomberg and Reuters. The data shows inflation is proving stubborn, with resurgent energy prices and tariffs cited as factors.

Bottom line — Fed Chairman Kevin Warsh faces a decisive meeting next week as markets price in a near-certain rate hike after August’s inflation surprise.

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• Overall CPI rose 0.4% from July and 3.4% year-on-year, pushed by higher energy costs, per Bloomberg and Reuters.
• Nationwide chief economist Kathy Bostjancic said she now expects the Fed to hike next week, citing energy price increases that could spill over to other goods and services, according to Bloomberg.
• Analysts note persistent pressures from the Iran conflict, tariffs, and data-centre buildout as keeping inflation elevated, per the reports.
• Fed Chairman Kevin Warsh recently said the central bank would 'have work to do' if inflation did not move 'clearly and at sufficient speed' toward its 2% target, according to Bloomberg and Reuters.
• Futures pricing shows investors see a near-certain rate hike next week and assign high odds to a second increase before year-end, per Bloomberg.
• Some policymakers argue higher rates are needed to prevent inflation expectations from shifting upward, the reports said.
• President Donald Trump has pressured the Fed to cut rates, but the data strengthens the case for a hike, as reported by Bloomberg and Reuters.

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