U.S. inflation holds at 3.4% in August

U.S. annual inflation held at 3.4% in August, matching the market consensus and remaining unchanged from July, the Bureau of Labor Statistics said Friday. On the month, prices rose 0.4% as expected, after a 0.1% increase in July, with gasoline up 3.9% and accounting for over a third of the monthly increase. Core inflation, which strips out food and energy, eased to 2.4% year-over-year from 2.5% and matched estimates.

Yet, the monthly reading came in at 0.3% against the 0.2% expected, accelerating from July. The print lands with fed funds futures pricing roughly a 69% chance of a rate hike at next week's FOMC meeting, after Brent crude's surge above $105 and a 30-year Treasury yield at 2007 levels pushed markets to increase hike bets. Where Prices Rose and Fell In August Gasoline was the single biggest driver, jumping 3.9% and accounting for more than a third of the entire monthly increase. Fuel oil surged 10.1% on the month and is now up 52.0% over the past year.

The broader energy index rose 2.1% in August and 16.3% over 12 months. Travel was the other pressure point. Airline fares climbed 2.7% on the month and are up 23.4% year-over-year, the largest annual increase of any major category outside energy. Lodging away from home rose 2.4% after falling 2.8% in July.

Shelter, the largest single component of the index, reaccelerated to 0.3% from 0.1%, though the underlying rent measures were tamer, with both owners' equivalent rent and rent up 0.2%. Communication jumped 2.3% after a 0.6% rise in July, education gained 0.8%, and vehicles firmed on both ends, with used cars and trucks up 0.4% and new vehicles up 0.3%. At the grocery store, eggs rose 2.9% and dairy gained 0.3%, though the overall food-at-home index was flat. Medical care declined 0.2% in August after rising 0.4% in July, with dental services down 0.6% and hospital services, physicians' services and prescription drugs all unchanged.

Medical care commodities are down 2.7% over the past year. Motor vehicle insurance fell 0.8% after a 0.3% decline in July, extending a cooling trend in one of the categories that tormented households through the post-pandemic inflation surge. Utility gas service dropped 1.1% and electricity slipped 0.2%, meaning the energy spike was confined almost entirely to the pump. Fruits and vegetables fell 0.4% for a third straight monthly decline, led by lettuce, which dropped another 6.2% after plunging 16.4% in July.

August CPI: Biggest Monthly Movers Category MoM Fuel oil +10.1% Gasoline +3.9% Airline fares +2.7% Lodging away from home +2.4% Communication +2.3% Shelter +0.3% Electricity -0.2% Medical care -0.2% Fruits and vegetables -0.4% Motor vehicle insurance -0.8% Utility (piped) gas service -1.1% Source: Bureau of Labor Statistics Fed Hike Odds Climb To 79% Prediction market Polymarket now prices a 79% chance the Federal Reserve raises rates at next week's meeting, up from roughly 70% before the release.

That would be the first hike of the cycle under new Chair Kevin Warsh, and it would come against a backdrop of Brent crude above $105 a barrel and a 30-year Treasury yield sitting at levels last seen in 2007. Markets Shook Off The Hawkish Knee-Jerk Twenty minutes after the release, the S&P 500 was up 0.2% at 7,661.72, the Nasdaq 100 had gained 0.2% to 29,376.08 and the Dow was 0.2% higher at 52,552.49. The Russell 2000 was the lone holdout at 2,916.90, down less than 0.1%. The 2-year yield kept bleeding lower, slipping to 4.592%, below where it traded before the data and more than 5 basis points off its post-print high.

Gold extended its reversal to a 0.8% gain at $4,364.70, and Bitcoin (CRYPTO: BTC) rallied 1.3% to $77,952. The U.S. Dollar Index erased gains. Image: Shutterstock