WASHINGTON, September 13 — US consumer prices rose faster than expected last month, firming up the case for the Federal Reserve to raise its benchmark interest rate again when its rate-setting committee meets on September 19-20. The Bureau of Labor Statistics reported that the all-items Consumer Price Index climbed 0.6% in August on a seasonally adjusted basis, accelerating from a 0.2% increase in July. Over the twelve months through August, the index was up 3.7%, compared with a 3.2% annual rate the month before.
Strip out food and energy, and the picture changes. The core index rose 0.3% for the month and 4.3% over the year — a step down from the 4.7% annual pace recorded in July.
The headline number and the underlying trend are pulling in different directions, and that divergence is what the FOMC will have to weigh. Energy prices drove the monthly increase. The gasoline index jumped 10.6% in August after a 0.2% gain in July.
Shelter, the largest contributor to core inflation, kept climbing — up 0.3% on the month and 7.3% over the year. Food prices rose 0.2%.
The Fed’s tightening path
The Fed has raised rates eleven times since March 2022, when the federal funds rate sat near zero, in the fastest tightening cycle since the 1980s. At its July 25-26 meeting, the committee lifted the rate by 25 basis points to a target range of 5.25% to 5.50%, the highest level in 22 years. Chair Jerome Powell said at the July 26 press conference that the committee would decide meeting by meeting, based on the totality of incoming data.
The September gathering will include an updated Summary of Economic Projections and a post-meeting press conference by Powell. The labor market has stayed resilient.
The unemployment rate was 3.8% in August, according to the BLS employment report released on September 1, and average hourly earnings rose 0.2% for the month and 4.3% over the year. The Fed’s dual mandate is maximum employment and price stability, with a longer-run inflation goal of 2%. Powell has repeatedly said restoring price stability is essential to achieving sustained maximum employment.
What to watch next: the September 19-20 FOMC decision and the updated projections, then the Fed’s following meeting on October 31-November 1.
