US Inflation Remains Elevated, Fueling Probability of Next Week's Rate Hike

The US Consumer Price Index (CPI) rose 0.4% month-over-month in August, accelerating from the 0.1% increase in July. The headline inflation remained at 3.4% year-over-year.

Core CPI, which excludes food and energy, increased 0.3% for the month and 2.4% from a year ago. Gasoline prices rose 3.9% in August and accounted for more than one-third of the monthly headline increase.

The report was not an inflation disaster, but it was not soft enough to remove the possibility of additional tightening. Fed funds futures finished the day pricing close to a 90% probability of a 25-basis-point Fed rate increase next week.