The consumer price index rose 0.1 percent for the month, above economists’ expectations for a 0.1 percent drop, as a drop in energy costs did not fully offset increases in services and other spending categories The data, released by the Bureau of Labor Statistics, also contrasts with July, when prices did not rise from the previous month. On an annual basis, headline inflation is at 8.3%, up from 8.5% in July, but still near a four-decade high. Economists had expected a reading of 8.1%. Financial markets reversed course after higher-than-expected inflation numbers. S&P 500 futures showed Wall Street’s benchmark index would open 2.4 percent lower on Tuesday morning, having risen 0.7 percent ahead of the data release. In government debt markets, the yield on the 2-year US Treasury, which is more sensitive to changes in interest rate expectations, rose 0.13 percentage points to 3.70%, having traded at 3.52% earlier. “We don’t see anything in here that would make the Fed want to choose a slower rate hike this month,” said Brian Coulton, chief economist at Fitch Ratings.

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The stunning jump came despite falling petrol prices in recent months. Earlier this summer, they surpassed the record high of $5 a gallon earlier in the summer after oil prices surged following Russia’s all-out invasion of Ukraine. The current national average is $3.70, according to the American Automobile Association. However, when energy and food prices are removed, the core CPI rose further. Between July and August, it increased by 0.6%, translating to an annual increase of 6.3%. This is higher than the 5.9 percent recorded in the previous period. The latest CPI report is the last major data release before the US central bank’s next policy meeting, in which officials are expected to implement a third straight rate hike of 0.75 percentage points. This would raise the federal funds rate to a new target range of 3% to 3.25%. By the end of the year, futures markets suggest the key policy rate will settle between 3.75 percent and 4 percent. Gasoline prices fell 10.6 percent in August, leading to a 5 percent drop in overall energy prices. Air ticket prices fell 4.6%, after falling 7.8% in July, while used car prices fell. However, a 0.7% increase in shelter-related costs offset these declines. Compared to the previous year, they increased by 6.2%. Food prices rose 0.8 percent, following July’s 1.1 percent jump, translating to an annual gain of 11.4 percent. Due to higher prices in the transport services sector as well as those for medical care, non-energy services inflation rose 0.6 percent, or 6.1 percent higher than the same period last year.

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In recent weeks, Fed policymakers have reaffirmed their commitment to getting inflation under control, highlighting the risks associated with allowing price pressures to persist.

A failure to reduce inflation and spiraling expectations of future price increases were likely to mean more economic pain later, Chairman Jay Powell and Vice Chairman Lael Brainard warned last week. As gasoline prices have fallen, so have expectations of future inflation. Data released by the Fed’s New York branch on Monday showed households now expect inflation to stabilize at 5.7 percent a year from 6.2 percent. But policymakers worry that this downward trend won’t be sustained, especially if energy prices spike later this year. Treasury Secretary Janet Yellen warned against that possibility over the weekend, citing concerns about widespread shortages across Europe as the bloc stops buying oil from Russia. Christopher Waller, the governor who sits on the Federal Open Market Committee, said on Friday that he supported “another significant increase” in the benchmark interest rate at the September meeting. He noted that the resilience of the US economy and the strength of the labor market gave the Fed “the flexibility to be aggressive” in the fight against inflation. US President Joe Biden is expected to host an event at the White House on Tuesday evening to celebrate the passage of the Inflation Reduction Act – a package of measures passed by Congress in August that includes clean energy incentives and some higher taxes to the rich and big companies. While economists do not believe the legislation will have an immediate impact on inflation, it could reduce price pressures in the long run. High inflation has slowed the economic recovery for months, giving Republicans an advantage heading into November’s midterm elections.