Fed Faces Pressure to Hike Rates as US Inflation Accelerates

The US inflation rate accelerated in August, with prices rising 3.4% compared to a year ago and 0.4% from July. Gasoline prices spiked 3.9% just from July to August, leaving gas prices more than 27% higher than a year earlier.

The consumer price index increase puts pressure on the Federal Reserve to boost benchmark interest rates next week, which could lift mortgage and auto loan costs in the months ahead. Fed officials have signaled they would need to see continuing disinflation to leave rates where they are, but 'today's August report did not deliver that,' said Kathy Bostjancic, chief economist at Nationwide.

The increase in prices for goods and services beyond energy includes appliances, car repairs, and wireless phone services. Airline tickets rose 2.7% on a monthly basis, while hotel room prices climbed 2.4% just from July to August. The rising cost of services will unnerve many Fed officials, as they are not driven by higher energy prices.

Wall Street investors now see a more than 80% chance that the Fed will increase rates Sept. 16, according to CME Fedwatch. Economists worry that more expensive fuel can spill into other parts of the economy, with diesel prices hitting record highs above $6 a gallon.