Inflation rises for second straight month in August on gas price leap

U.S. inflation quickened for a second consecutive month in August, data from the Commerce Department indicated Wednesday, adding yet another layer of complexity to the Federal Reserve's efforts to tame consumer price pressures. 

The Bureau of Labor Statistics said its headline consumer price index for August rose 3.7 from last year, faster than the 3.2% pace recorded in July and just ahead of the Wall Street consensus forecast of a 3.6% advance. A big jump is gas prices powered the year-on-year increase, with the Energy Department recording a 6.5% gain from July prices to around $3.954 per gallon.

On a monthly basis, inflation was up 0.6%, the BLS said, compared with a 0.2% reading in July and the Wall Street forecast of 0.6%. Monthly inflation peaked at 1.3% in June of last year.

Overall inflation ticked up in August as expected thanks to gas. But the overall trend in core inflation is still very encouraging. In the past 3 months, prices excluding food and energy have been growing at an annualized rate of just 2.4%! https://t.co/YEKQXeL8aQ pic.twitter.com/bBMKk9P1ef— Julia Pollak (@juliaonjobs) September 13, 2023

Annual inflation peaked at a four-decade high of 9.1% in June of last year. Monthly inflation peaked at 1.3% in June of last year.

So-called core inflation, which strips out volatile components such as food and energy prices, rose 0.3% on the month and 4.3% on the year, the report noted, with the crucial annualized reading matching the Wall Street forecasts of 4.3%.

U.S. stocks were modestly lower following the data release with futures tied to the S&P 500 priced for a 7 point opening bell dip and those linked to the Dow Jones Industrial Average priced for a 42 point decline. The tech-focused Nasdaq were priced for a 29 point pullback.

Benchmark 10-year Treasury note yields were marked 1 basis points lower from earlier levels at 4.302% while 2-year notes were pegged at 5.024%, around 2 basis points lower from prior to the data release.

The Fed lifted its benchmark lending rate to between 5.25% and 5.5% in July, the 12th hike in 16 months, and warned that stubborn inflation pressures would likely require more increases between now and the end of the year.

CME Group's FedWatch is now pricing in only a 79% chance that the Fed will lift the benchmark federal-funds rate by a quarter-point, to between 5.5% and 5.75%, when it meets next week in Washington. The odds of a hike in November were trimmed to around 40.4%.

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