Inflation outpaced wage growth for the fifth month in a row.
The Bureau of Labor Statistics released new consumer price index data, showing inflation at 3.4% in August, matching July's rate, as economists expected. Average hourly earnings increased 3.1% from a year ago in August, the slowest rate since 2021.
CPI increased 0.4% over the month from July, matching the expected 0.4% and higher than the previous 0.1%.
Core CPI, which excludes volatile energy and food prices, rose 0.3% over the month, higher than the previous increase and the forecast, both at 0.2%. Core CPI increased 2.4% over the year, as expected, and lower than the previous 2.5%.
Energy has been a crucial category to watch in the report, as the war in Iran and disruptions to the Strait of Hormuz persist. Energy prices rose 16.3% over the year, above July's 14.7%, and increased 2.1% over the month after dropping 1.5% in July.
Gas prices increased 27.4% from a year ago and 3.9% from a month ago. Brent crude oil prices have been rising, reaching over $100 a barrel for the first time since July this week.
The Cyclospora outbreak has been a hot topic this summer. Lettuce prices dropped 6.2% over the month in August after falling 16.4% in July. Overall food prices increased 0.1% from a month ago, as they did in July.
Bond yields were slightly higher following the report. The 10-year Treasury yield hovered at about 4.95%, though the Fed-sensitive 2-year bond yield was up 6 basis points to 4.61%, the highest level in a year.
The new report is out just days before the Federal Reserve's next meeting. Elevated inflation alongside better-than-expected job growth and persistently low unemployment could mean it's time for the first interest-rate hike since 2023.
CME FedWatch, which tracks the probabilities of interest-rate moves based on traders' expectations, showed a 90% chance of a hike next week, well above the roughly 70% chance before the report. The Fed has held rates steady after the committee cut rates in December 2025.
"With energy prices reaccelerating and core prices firming more than expected, it will be difficult for the Fed to explain why holding rates makes sense against a backdrop of low unemployment," Ryan Weldon, investment director and portfolio manager at IFM Investors, said in commentary.
The Federal Open Market Committee decided to keep rates steady in its most recent meeting in July. "A good majority of my colleagues and I thought the wiser course was to await new information in the intermeeting period — especially given possible developments in supply chains, investment flows, and geopolitics — before deciding whether a change in interest rate policy was advisable," Fed chair Kevin Warsh said during his Jackson Hole, Wyoming, speech in August.
Following this morning's CPI report, Jeff Schulze, head investment strategist at Franklin Templeton Institute noted that both equities and fixed income investors have largely prepared for more Fed rate hiking, with 3.5 hikes already priced in to Fed Fund futures data prior to the release.
"Taken together, the details of the report suggest that underlying inflationary pressures continue be sticky and the Fed will have to hike in order to help inflation return toward the 2% target," he stated. " This print solidifies the case for several rate hikes in the near-term and will not be a material driver to risk assets."
Laura Ullrich, the director of economic research in North America at the Indeed Hiring Lab, told Business Insider she's not surprised wage growth hasn't kept up with price growth, given the lack of churn in the job market.
"If employers feel like they don't have to worry as much about retention, wages aren't going to grow as much," she said.
ZipRecruiter economist Nicole Bachaud said this is putting workers in a financially precarious position. The job-search platform's survey found 40% of job seekers are struggling financially. Bachaud said that affects confidence, how people can engage with the job market, and their outlook on it.
How are higher prices affecting you? Have you had to modify your budget, dip into savings, or delay major purchases? Reach out to this reporter to share at mhoff@bjinnox.com.
