US August CPI rises 0.4% month-on-month; market bets on a 90% probability of Fed rate hike next week

Due to a rebound in gasoline costs after two consecutive months of decline, U.S. consumer prices accelerated in August, strengthening financial market expectations that the Federal Reserve may raise interest rates next week. The U.S. Department of Labor’s Bureau of Labor Statistics said on Friday that after edging up 0.1% in July, the Consumer Price Index increased by 0.4% month-on-month last month. Over the 12 months through August, consumer inflation rose 3.4%, in line with the increase in July. Data released on Thursday already showed a rise in the August Producer Price Index, with several key components posting strong gains, which are included in PCE inflation calculations. Combined with last week's strong August employment report, this further boosted expectations of a rate hike next week. After the release of the U.S. August CPI data, the market now expects about a 90% probability of the Federal Reserve raising rates next week.