US CPI remained steady in August, though underlying inflation pressures persist

U.S. consumer prices rose by 0.2% month-over-month in August, matching July’s figure and aligning with expectations. On an annual basis, the CPI increased by 2.5%, the smallest rise since February 2021, down from the 2.9% recorded in July.

While year-over-year inflation met forecasts, core inflation, excluding volatile food and energy prices, climbed 0.3% month-over-month, slightly higher than the 0.2% rise in July. This uptick in core inflation reduces the likelihood of a 50 basis point rate cut at the Fed’s policy meeting next week.

Despite inflation still being above the Fed’s 2% target, the overall trend remains downward, leaving room for potential rate cuts. This gives the central bank more flexibility to shift its focus toward the labor market, another key pillar of the U.S. economy.

Recent labor data showed employment growth falling short of expectations in August, though an unexpected drop in unemployment mitigated the negative impact. This further cooled speculation around a more aggressive approach by the Fed.

Polls now indicate declining expectations for a 50 basis point rate cut, with most bets favoring a more likely 25 basis point cut, signaling the start of a policy easing cycle after a year of the Fed holding rates at a peak of 5.25%-5.50%.