Produce goes on sale at a grocery store in Chicago, Illinois on September 10, 2026.
Scott Olson | Getty Images
Prices for a wide range of goods and services continued to rise in August, raising expectations for a Federal Reserve rate hike next week, according to Friday’s report.
The Consumer Price Index rose a seasonally adjusted 0.4% in the month, bringing the 12-month rate of increase to 3.4%, the Bureau of Labor Statistics said Friday. Both measurements were in line with the Dow Jones consensus.
However, excluding volatile food and energy prices, core CPI rose 0.3% month-on-month, beating expectations by 0.1 percentage points. The core annual rate of return was 2.4%, in line with expectations.
The report will be the last major inflation measure the Fed will review before holding its policy meeting next week, which concludes with a vote on its key interest rate on Wednesday.
The numbers reinforced traders’ expectations that the Federal Open Market Committee would raise benchmark interest rates by a quarter of a percentage point. The probability of a rate hike has jumped to about 90%, according to FedWatch, which tracks CME Group’s federal funds futures prices.
Energy drove the overall index higher, with gasoline prices rising 3.9%, accounting for more than a third of the index’s rise. Under pressure from escalating tensions in the Middle East, the energy index rose roughly 2.1%, up 16.3% year-on-year.
Food prices rose 0.1% as household food spending remained flat. The food index accelerated at an annual rate of 2.7%.
Another important factor was the 0.3% increase in shelter costs, which has eased over the past two months. Transportation services rose 0.5%. Used cars and trucks rose 0.4% and new vehicle prices rose 0.3%, part of what appears to be a broader increase in the index.
In the lead-up to the CPI announcement, markets had already priced in a nearly 70% chance that the central bank would vote to raise the benchmark interest rate by a quarter of a percentage point.
But there are differing views on which way the Federal Open Market Committee, which decides interest rates, will lean, with some speculating that the difference could be as small as one-hundredth of a point on the CPI measure.
Chairman Kevin Warsh has expressed a commitment to bringing inflation back to the Fed’s 2% goal, recently saying “we have work to do” if the numbers don’t improve. His comments were widely interpreted as a recommendation to raise rates, but in the past few weeks several key officials have recommended a more patient approach.
“Chairman Warsh and others suggested that rates could only be left on hold if disinflation persists, but today’s August report does not show that,” said Kathy Bojancic, chief economist at Nationwide. “Furthermore, oil, gasoline and diesel prices are rising again, raising concerns that rising energy prices could spill over into other goods and services and inflation expectations.”
Nationwide, a quarter-point increase is expected next week. The federal funds rate, a benchmark for several consumer loans, is currently fixed at a range of 3.5% to 3.75% and will remain so through 2026.
This is breaking news. Please refresh to check for updates.
