Fed Faces Pressure to Hike Rates as US Inflation Surges

The latest Consumer Price Index (CPI) report has revealed that US customer prices rose more than expected in August, putting pressure on the Federal Reserve to raise interest rates at its upcoming policy meeting.

According to the Bureau of Labor Statistics data, the core inflation rate increased by 0.3% in August from a month earlier, exceeding median estimates in a Bloomberg survey that had predicted an increase of 0.2%. The core CPI also rose by 2.4% on an annual basis.

The sharp rise in energy prices, particularly gasoline, which jumped by 3.9%, was the primary driver of the increase in the index. Energy prices were up 16.3% compared to last year and accounted for almost one-third of the total increase.

Fed Chairman Kevin Warsh has stated that if inflation doesn't head towards its 2% target, 'the central bank will have work to do.' The CPI report comes ahead of the Fed's meeting on September 15-16, and according to CME Group's FedWatch, the odds of a quarter-point rate increase have shot up to 90%, from around 70% prior to the report.