US inflation was stronger than expected in August, keeping the Federal Reserve on track for a third 75 basis point interest rate hike. The consumer price index rose 0.1% from July, after no change last month, Labor Department data showed on Tuesday. From a year ago, prices rose 8.3%, a slight slowdown.
The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from July and 6.3% from a year earlier. All measures came in above forecasts. Housing, food and medical care were among the biggest contributors to the price increase.
Accelerating inflation points to a stubbornly high cost of living for Americans, despite some relief at the gas pump. Price pressures are still historically elevated and widespread, pointing to a long way to go to the Fed’s inflation target.
Chairman Jerome Powell said last week that the central bank will act “directly” to achieve price stability, and some policymakers expressed support for another historically large rate hike. Officials have said their decision next week will be based on the “totality” of economic data they have in hand, which also illustrates a strong labor market and weakening consumer spending.
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After the data, Treasury yields rose, while S&P 500 index futures fell and the dollar rose. Traders increased bets that the Fed will raise interest rates by three-quarters of a percentage point, now seeing such an outcome as a foregone conclusion.
Ahead of the report, several Wall Street forecasters, including Evercore ISI and Deutsche Bank AG, raised their forecasts to call for a move of 75 basis points.
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Persistently high inflation has dragged down President Joe Biden’s approval ratings and threatened Democrats’ chances of retaining their slim majority in Congress in November’s midterm elections. Biden, at a White House ceremony later Tuesday, plans to argue that he and his fellow Democrats have helped put the economy back on a stronger footing as they push for a comprehensive new law on climate, energy and health care called the “Inflation Reduction Act.”
Food and Gas
Food costs rose 11.4% from a year ago, the most since 1979. Electricity prices rose 15.8% from 2021, the most since 1981.
Meanwhile, gasoline prices fell 10.6% in August, the biggest monthly drop in more than two years.
Housing costs — which are the largest component of services and make up about a third of the overall CPI index — continue to rise. Overall shelter costs rose 0.7% from July and 6.2% from a year earlier, both the highest since the early 1990s.