U.S. consumer prices rose slightly in August, but underlying inflation remained sticky amid higher rents and costs for some services, which could discourage the Federal Reserve from delivering a half-point interest rate cut next week. The mixed inflation report from the Labor Department on Wednesday followed data last week showing the labor market still cooling in an orderly fashion in August, with the unemployment rate retreating from near a three-year high touched in July.
Financial markets boosted the chances of a quarter-point rate cut next Wednesday on the inflation data and sharply lowered the probabilities of a 25 basis points reduction. "The road to normal inflation hit a bump in August as lingering pressures for housing and service costs once again cropped up," said Ben Ayers, senior economist at Nationwide. "This should clinch a smaller, 25 basis points rate cut from the Fed next week as Fed officials remain wary to feed any lingering price momentum for the economy."
In the 12 months through August, the CPI advanced 2.5%. That was the smallest year-on-year rise since February 2021 and followed a 2.9% increase in July. Economists polled by Reuters had forecast the CPI gaining 0.2% and rising 2.6% year-on-year. Though inflation remains above the U.S. central bank's 2% target, it has slowed considerably, allowing policymakers to focus more on the labor market in their quest to sustain the economic expansion.
Source: Reuters
