US Inflation Holds Steady as Energy Shock Intensifies

The US Bureau of Labor Statistics released inflation data on Friday, showing that annual inflation held steady at 3.4%, while core inflation eased to 2.4% from 2.5%. The monthly price rises accelerated to a fourfold pace in August, the fastest since May.

Markets had largely priced in a quarter-point interest rate hike by the Federal Reserve ahead of the data release, but the numbers have increased the likelihood of such an action at the Fed's September meeting. CME's FedWatch tool put the probability at 91.6%, up from 67.4% before the data was released.

Chairman Jerome Powell's speech in Jackson Hole last month had already shifted market expectations, with some economists arguing that the economy has strengthened rather than weakened and that the labor market is consistent with full employment.

The inflation data is still ambiguous, with core inflation within half a point of the 2% target, but the monthly acceleration points to underlying pressure. The Fed has held its benchmark rate at 3.50% to 3.75% since December, despite dissenting regional presidents who favor an increase.

The energy shock is intensifying, with US crude futures topping $100 a barrel as tensions escalate around the Strait of Hormuz and Ukraine's strikes on Russian refineries lead to diesel exports being banned.