U.S. consumer prices rise by 2.9% year-on-year in August

Investing.com - Headline U.S. consumer price growth accelerated in August, but the uptick was largely in line with estimates, potentially further bolstering wagers that the Federal Reserve will slash interest rates at its upcoming policy gathering next week.

The consumer price index came in at 2.9% in the 12 months to August, compared to 2.7% in July and matching economists’ expectations, according to data from the Labor Department’s Bureau of Labor Statistics. Month-on-month, the inflation gauge stood at 0.4%, faster than 0.2% in the prior month and slightly above forecasts of 0.3%.

A 0.4% jump in shelter costs was the largest contributor to the monthly increase, the BLS said.

Stripping out volatile items like food and fuel, the so-called "core" measure was 3.1% year-on-year and 0.3% on a monthly basis, equalling both July’s pace and market projections.

Airline fares, used and new vehicles, apparel all factored into the rise in the underlying index, and were partially offset by a decrease in medical car and recreation costs.

Elsewhere on Thursday, weekly first-time claims for unemployment benefits edged up to 263,000, versus a downwardly-revised prior mark of 236,000 and above estimates of 235,000.

Taken together, the figures "won’t deter the Fed from cutting rates" at its September 16-17 meeting, "but it’s a tough combination for monetary policy going forward," said Kathy Jones, Chief Fixed Income Strategist at Charles Schwab, in a post on X.

Worries have swirled around whether the Fed now faces simultaneous threats to both sides of its dual mandate -- maximizing employment and maintaining price stability, defined as a long-run inflation rate of 2%.

But Fed officials, including Chair Jerome Powell, have indicated that they are likely to prioritize the labor market’s easing over persistent inflationary pressures. U.S. job growth weakened in August, while the unemployment rate stood at an almost four-year high. A rate cut could in theory spur more investment and hiring, albeit at the risk of fueling price growth.

Expectations for a Fed rate cut next week of at least 25 basis points have been all but cemented, according to CME’s closely-monitored FedWatch Tool. There is even an outside chance that the central bank could draw down borrowing costs by half a percentage point from the current range of 4.25% to 4.5%.

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