The latest data showed that US consumer inflation rose 2.9% in August, up from 2.7% in July, in line with expectations. The monthly increase came in at 0.4%, higher than the 0.3% estimate, driven by persistently high gasoline prices and food inflation.
Core inflation remained at 3.1% annually, unchanged from the previous month, while the 0.3% monthly increase was the highest in six months. Although inflation remains stubborn, the market expects the Fed to cut interest rates by a quarter point at its meeting next week.
Expectations for a larger cut, namely a half point, increased after a revised jobs data showed the labor market was weaker than initially reported. The market now expects a 92% chance of a quarter point cut and an 8% chance of a half point cut, with a total rate cut of 75 basis points expected by the end of the year.
Meanwhile, wholesale inflation fell 0.1% in August, the first decline in four months. This fall suggests that companies are absorbing the costs of tariffs, while sluggish domestic demand is putting additional pressure on the economic outlook.
