NEW YORK (Reuters) – U.S. consumer prices rose more than expected in August while the annual increase in inflation was the largest in seven months, although the numbers will not prevent an interest rate cut from the Federal Reserve next week in the midst of a weakening labor market.
The Consumer Price Index rose 0.4% last month after increasing 0.2% in July, the Labor Department’s Bureau of Labor Statistics (BLS) said on Thursday. In the 12 months through August, the CPI advanced 2.9%, the largest increase since January, after climbing 2.7% in July.
MARKET REACTION
STOCKS: U.S. stock futures gained after the data. S&P 500 E-minis were up 19 points, or 0.3%.BONDS: U.S. Treasury yields dipped, 10-year yield last down on the day at 4.022%.FOREX: The dollar index slipped, last down 0.2% at 97.61.
COMMENTS:
“CPI is consistent with what we were looking for in headline, although a bit hotter than what the market was looking for. A lot of the strength in this CPI print is coming from an unexpected source, perhaps, which is strength in air fares and hotels, and that’s something that was reasonably well telegraphed by the airlines, but perhaps not at this magnitude. It’s consistent with a recovery in corporate demand for travel, as well as perhaps some improvements in consumer confidence and a willingness to spend on discretionary items. So that’s encouraging to us about the outlook.”
“That said the evidence in this print of tariff pass through is soft, and so it shows continued business reticence to pass on tariff increases, perhaps due to lingering concerns about the strength of the consumer and their ability to pay higher prices.”
“We think that inflation at this point is unlikely to land at 2% anytime soon. We’re very comfortable with an above consensus view on inflation and above 2% view on inflation next year. That reinforces our confidence that the economy will stay out of recession and that inflation will remain resurgent and remain modestly above the Fed’s 2% target.”
OLIVER PURSCHE, SENIOR VICE PRESIDENT, ADVISOR, WEALTHSPIRE ADVISORS, WESTPORT, CONNECTICUT:
“The slightly elevated CPI and core CPI being in line with expectations reinforces the notion that the Fed is going to cut rates next week. The higher unemployment filings suggest there’s a possibility it could be 50 basis points as opposed to 25… although I think that’s still only a remote possibility. But it certainly seems like ‘bad news is good news’ is back.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, BROOKFIELD, WISCONSIN: (VIA EMAIL)
“There’s nothing to see here, at least to inform what the Fed might do next week. Shelter price inflation is still the big driver of services inflation and we know the Fed pretty much ignores that component. Goods price deflation turned to inflation, but it’s a slow simmer higher instead of a raging fire.”
“Retirees are going to start caring about the inflation numbers because Social Security benefits are indexed to the change in prices during the third quarter. So far, that looks like a 2.7% cost of living adjustment for 2026. This illustrates why retirees should care a lot about the integrity of the BLS data. If there are political incentives to tilt the official readings lower, that has real dollars and cents consequences for many people. This also shows why the government would have a rough time trying to inflate its way out of its debt mess. More and more of government spending automatically increases with inflation.”
GARY SCHLOSSBERG, GLOBAL STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, SAN FRANCISCO:
“Inflation is firming, not as much as we expected earlier this year when those broad tariffs were first announced by the President, but it is firming nonetheless … in a way, that the market can digest it.””The market seems to be absorbing a number that all in all was pretty much in line with expectations.” “We’re still looking for a rate cut next week. We’re not looking for a jumbo cut as some had expected after the big downward revision to the jobs numbers and then we were still looking for another one or two cuts before the end of the year.”
“(The data) may temper the market’s enthusiasm for big multiple cuts, certainly for big cuts, but I don’t think it really changes the trajectory at the margin.”
(Compiled by the Global Finance & Markets Breaking News team)
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