US Annual Inflation Rate Unchanged at 3.4 Percent in August

Consumer inflation was stable in August despite the war in Iran upending global energy markets and reviving price pressures across the economy.

August’s annual inflation rate was unchanged at 3.4 percent, according to data from the Bureau of Labor Statistics—a government agency tracking jobs, inflation, and wages—released on Sept. 11.

On a monthly basis, the consumer price index (CPI) rose 0.4 percent.

Both readings were in line with the consensus forecasts.

Stripping out volatile energy and food prices, the 12-month core inflation rate slowed to 2.4 percent, the lowest level since March 2021.

From July to August, core consumer prices jumped 0.3 percent, slightly higher than economists’ expectations.

Gasoline, which rose almost 4 percent last month, accounted for more than one-third of the monthly increase, the bureau said.

The energy index surged 2.1 percent in August following back-to-back declines.

Oil and gas prices have accelerated since the resumption of attacks between Washington and Tehran, with the main benchmarks—West Texas Intermediate and Brent—topping $100 a barrel this week.

Investors fear that the Iranian conflict could be heating up as both sides engage in tit-for-tat retaliatory strikes. The war, now in its seventh month, has significantly affected the Strait of Hormuz, a global chokepoint that handles about 20 percent of the world’s oil and gas trade.

Shelter inflation remained sticky and stubborn last month, rising 0.3 percent from the 0.1 percent gain in July.

Economists expected housing pressures to subside by now, but shelter inflation remains a sizable driver of elevated core inflation. On a 12-month basis, it is up 3 percent.

Food prices were subdued last month, rising just 0.1 percent. Supermarket prices were flat, while the food-away-from-home index edged up 0.3 percent for the third time in four months.

Key proteins were mixed. Beef and veal fell 1 percent, the second straight monthly drop. Pork and chicken each rose 0.4 percent. Fish and seafood were unchanged. Eggs swelled nearly 3 percent.

Prices for tariff-sensitive items were also mixed.

The index for new vehicles climbed 0.3 percent. Apparel inflation was flat. Appliances and televisions each surged more than 1 percent, while smartphones fell almost 2 percent. The overall information technology commodities index was little changed.

Fed Policy Implications

U.S. stocks held onto their gains following the latest CPI report.

Treasury bond yields were mixed during the Sept. 11 trading session.

Short-term securities revved up, with the 2-year yield, which typically tracks Federal Reserve policy expectations, firming above 4.58 percent.

Long-dated yields were down slightly. The benchmark 10-year Treasury yield slipped to around 4.93 percent, and the 30-year eased to 5.33 percent.

The August numbers were the final batch of major inflation data heading into next week’s Federal Open Market Committee policy meeting.

Investors overwhelmingly expect the Fed to follow through on a quarter-point rate hike at the Sept. 15–16 meeting. According to the CME FedWatch Tool, there is an 85 percent chance of an increase.

Monetary policymakers must decide whether to raise interest rates amid an oil supply shock and prevent higher energy prices from filtering through the broader economy. At the same time, rate hikes could threaten economic growth prospects and the labor market.

“It is said that all Fed Chairs are tested within their first six months and with bond yields rising, inflation showing no signs of cooling, and a President who is calling for rate cuts (and will be incensed at rate hikes), Chairman Warsh is stuck between a rock and a hard place,” Chris Zaccarelli, chief investment officer at Northlight Asset Management, told The Epoch Times in an emailed note.

“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold.”

Their counterparts at the European Central Bank raised the institution’s three key interest rates by a quarter point, warning of upside inflation risks and downside growth challenges.

Meanwhile, various Fed voices have expressed a broad array of views.

Fed Governor Michael Barr said that if inflation is moderating toward the central bank’s 2 percent target, officials can remain patient.

“However, if inflation appears not to be moderating sufficiently, then I think we should act decisively to raise rates,” Barr said in a Sept. 1 speech.

In a Sept. 3 interview with Reuters, Fed Governor Christopher Waller indicated that he will vote to hold rates steady in the current target range of 3.5 percent to 3.75 percent.

“I’m going to paraphrase John Lennon here: Give disinflation a chance. We can wait one meeting,” Waller said. “What’s the cost of waiting one meeting? Hiking 25 basis points, one meeting right now, is not going to bring the CPI down to 2 percent.”

The early outlook for September’s CPI report suggests little improvement in headline inflation.

The Cleveland Fed’s widely watched Nowcasting model forecasts the annual inflation rate to hold steady at 3.4 percent, with a 0.4 percent monthly rise. Conversely, core inflation could slow further to 2.3 percent and increase by just 0.2 percent.