US Inflation Accelerates in August, but Markets Still Price Fed Rate Cut

Consumer inflation accelerated in August, with the Labor Department's Consumer Price Index rising 0.4% from July and 2.9% from a year earlier, the Bureau of Labor Statistics said Thursday.

The monthly advance exceeded consensus forecasts of a 0.3% increase and marked a pickup from July's 2.7% year-over-year pace. On a core basis, which excludes the often-volatile food and energy components, the CPI rose 3.1% over the past 12 months, unchanged from the prior month.

The report did not substantially alter market odds that the Federal Reserve will begin cutting interest rates at its policy meeting next week. Traders were pricing in about a 100% probability that the Fed will cut the federal funds rate by at least a quarter point at the meeting, according to CME Group's FedWatch tool.

Fed Chair Jerome Powell signaled last month that officials were more worried about signs of weakness in the labor market than about inflation running hot, a stance that had already helped fuel expectations for near-term easing. Market participants said it would have taken an unusually strong inflation reading to completely derail those rate-cut bets.

Economists and strategists noted the modest monthly uptick in headline inflation while pointing to the stability in core readings as evidence of a still-anchored inflation picture. The CPI report is the latest data point ahead of a closely watched Fed gathering, and it follows several months of cooling inflation from the highs seen in 2022 and 2023.

The August CPI release will be weighed alongside other incoming economic indicators and Fed officials' public comments as central bankers finalize their policy decision. For now, despite the surprise to the upside in the monthly CPI, markets continued to reflect confidence that the central bank will move to ease policy in the near term.