August Sees Faster-Than-Expected 0.3% Rise in U.S. Core Inflation

The latest U.S. Consumer Price Index (CPI) figures for August aligned with expectations, but the core rate saw a more significant increase than economists had predicted. This development is likely to solidify expectations for the Federal Reserve to implement a modest 25 basis points interest rate cut at its upcoming meeting.

In August, the CPI experienced a 0.2% uptick, matching forecasts and mirroring the previous month’s 0.2% rise. On an annual basis, the CPI showed a 2.5% increase, slightly below the anticipated 2.6% and the 2.9% recorded in July.

The core CPI, excluding volatile food and energy prices, exhibited a 0.3% surge in August, surpassing the projected 0.2% increase and the 0.2% growth seen in July. Year-over-year, the core rate stood at 3.2%, in line with expectations and consistent with the previous month’s figure.

Following the release of the inflation data, the price of bitcoin (BTC) initially declined marginally for the day but registered a further 1.5% drop over the past 24 hours to $56,500 in response to the news. Concurrently, U.S. stock index futures extended losses, with both the S&P 500 and Nasdaq down by 0.5%. The U.S. 10-year Treasury yield rose by 3 basis points to 3.68%, and the dollar index increased by 0.15%. Meanwhile, the price of gold dipped by 0.45% to $2,532 per ounce in traditional markets.

Prior to the data release, market participants had priced in a 71% likelihood of the Fed reducing its benchmark fed funds rate range by 25 basis points to 5%-5.25% at its upcoming meeting, with a 29% chance of a more substantial 50 basis points cut to 4.75%-5%, as indicated by CME FedWatch. The persistence of core inflation highlighted in the recent report, favored by monetary policymakers over headline figures, is expected to reinforce the consensus for a modest rate cut by the Fed.

In response to the CPI announcement, the probability of a 25 basis points rate cut next week surged to 85% within 15 minutes. Looking further ahead, the odds of the Fed implementing a total reduction of 75 basis points by year-end rose to 14%, up from 9% recorded just a day earlier.