U.S. inflation rose from July’s 3.2 percent annually to 3.7 percent in August, driven higher by rising gasoline prices, the U.S. labor department reported. Analysts had expected the figure to rise to 3.6 percent.

Prices overall increased 0.6 percent during August from July but remained lower than they were a year earlier.

Brent crude, the world’s oil price benchmark, has been steadily rising as Russia and Saudi Arabia have cut deliveries. Brent spent last week above $90 a barrel and traded at $94.68 on 18 September at 4 p.m. U.S. EDT. West Texas Intermediate, the standard for U.S. pricing, broke above $90 last week. (See “Oil Supplies Will Remain Short of Demand Through 2023, IEA Says” in this issue.)

Core inflation, which screens out food and fuel prices due to their short-term volatility, moved up just 0.3 percent in August. Year on year, the core rate fell last month from 4.7 percent to 4.2.

Analysts and the U.S. Federal Reserve focus on core inflation rates because they give a more accurate picture of inflation’s trajectory over time.

However, top-line inflation makes headlines and news that “inflation is rising” could prod people to cut back discretionary spending, the Financial Times noted.

Also last month, U.S. wholesale inflation rose by 0.7 percent from July and 1.6 percent year on year, the biggest month-over-month gain since July 2022, the U.S. labor department reported.

Dow Jones had estimated a 0.4-percent increase.

The cost of goods rose 2 percent, the sharpest monthly gain since June 2022. Services costs edged up 0.2 percent.

As with consumer inflation, wholesale prices were hit by a sharp rise in energy costs as world oil prices worked their way closer to $100 a barrel. 

“The most important message is that core inflation is still coming down,” EY chief economist Gregory Daco told the FT. “We knew there would be some upward pressures from energy prices…momentum for core is still encouraging.”

TREND FORECAST: As we have detailed, the bet on The Street is that the Fed will hold its key interest rates steady at this week’s meeting but also the guess is that they could raise interest rates either in November or December, depending on future economic data. However, with oil prices rapidly rising, there is growing fear that the Fed will possibly raise interest rates on Wednesday. We still maintain our forecast that the Fed will rapidly lower interest rates in the run-up to the 2024 race for the White House next year.

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