A key gauge of US consumer prices rose by more than expected last month, bolstering the case for Federal Reserve officials to raise interest rates next week.
The consumer price index, excluding food and energy, rose 0.3% in August from a month earlier, according to Bureau of Labor Statistics data out Friday. On an annual basis, it advanced 2.4%.
Overall consumer prices rose 0.4% from the prior month on higher energy prices, and 3.4% from a year earlier. Futures showed investors priced in a rate hike next week as a near certainty, and put a high likelihood on a second increase before the end of the year.
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 center buildout. The US central bank will likely see the numbers as tipping the scale in favor 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.
See more: What a Fed Rate Hike Actually Means for the US Economy and Inflation
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.”
The US economy, meanwhile, is contending with resurgent energy prices as the Middle East and Russia-Ukraine wars hit supplies. This week, oil prices pushed above $100 a barrel and US retail diesel prices rose to a record.
Friday’s report showed energy prices rose 2.1% in August, while grocery prices were little changed and shelter prices rose 0.3%.
Services prices, excluding energy and rents, rose 0.5%, reflecting increases in categories including communication, lodging away from home and airline fares, according to data compiled by Bloomberg.
Goods prices, excluding food and energy commodities, rose 0.1%, bolstered by increases in prices for new and used vehicles.
Many Americans have been squeezed between rising prices and tepid pay gains. A separate report Friday that combines the inflation figures with recent wage data showed real average hourly earnings fell 0.3% in August from a year earlier, adding to a string of weak readings since the Iran war began.
Central banks typically raise interest rates to increase borrowing costs, dampen demand and cool inflation. Fed officials have left rates steady at each of their last five meetings, though at the July gathering, three of them dissented in favor of a quarter-point rate hike.
The August CPI report is the last major gauge of inflation before the September gathering. A separate report Thursday showed producer prices rose last month by the most since May, lifted by a surge in energy prices.
The Fed’s preferred measure of inflation, the personal consumption expenditures price index, is due at the end of the month. Economists currently expect overall inflation as measured by that gauge will end the year north of 3%, still well above the central bank’s 2% goal.
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