CPI report: Core inflation up 0.3% in August, rate hike jump to 90%

The CPI report released Friday, September 11, indicated U.S. customer prices rose more than expected in August, strengthening the case for the Federal Reserve to raise interest rates at its policy meeting scheduled for next week.

The consumer price index, excluding volatile food and energy raised 0.3% in August from a month earlier, as indicated by Bureau of Labor Statistics data.

Median estimates in a Bloomberg survey had expected an increase of 0.2%. Core CPI, meanwhile, increased by 2.4% on an annual basis.

Headline CPI rose 0.4% on the month, putting the annual increase at 3.4%, matching expectations. The increase in the CPI was primarily driven by higher energy prices, especially gasoline, which increased by 3.9% and made up almost one-third of the increase in the index. 

Energy prices were up 2.1% in total amid rising tensions in the Middle East region and up 16.3% compared to last year. Shelter prices increased 0.3%, whereas transportation services were up 0.5%.

This will be the last important inflation reading that the Fed will see before its meeting on September 15-16. After the release of the CPI report, the odds of a quarter-point rate increase shot up to 90%, according to CME Group's FedWatch. Prior to the report, the probability of a hike stood at around 70%.

Fed Chairman Kevin Warsh has said the central bank will “have work to do” if inflation doesn’t head toward its 2% target. Currently, the Fed’s benchmark sits in a 3.50% to 3.75% range.