WASHINGTON (Reuters) – U.S. consumer prices rose slightly in August but underlying inflation remained subdued, a move that could prevent the Federal Reserve from cutting interest rates by half a percentage point next week.
The consumer price index rose 0.2% last month after rising 0.2% in July, the Labor Department’s Bureau of Labor Statistics reported Wednesday. In the 12 months through August, the CPI rose 2.5%, the smallest annual increase since February 2021 and followed a 2.9% rise in July.
Economists polled by Reuters had forecast CPI to rise 0.2% and 2.6% on an annual basis. While inflation is still above the U.S. central bank’s 2% target, it has slowed significantly, allowing policymakers to focus more on the labor market as they seek to maintain economic expansion.
Government data last week showed nonfarm employment rose less than expected in August but the unemployment rate fell to 4.2% from a nearly three-year high of 4.3% in July, making the odds of a 50 basis point rate cut less likely and a quarter-point cut more likely.
The labor market is cooling as there is a significant moderation in the number of vacancies, reducing the risk of a revival in inflation.
Early Wednesday morning, financial markets saw a roughly 29% probability of a 50 basis point rate cut at the Fed’s Sept. 17-18 policy meeting, according to CME Group’s FedWatch Tool. The quarter-point rate cut was roughly 71%.
The central bank kept its key overnight interest rate unchanged at the current level of 5.25%-5.50% after raising it by 525 basis points in 2022 and 2023.
Annual consumer price growth has slowed significantly from a peak of 9.1% in June 2022 as higher borrowing costs curb demand.
Excluding volatile food and energy components, the CPI rose 0.3% in August after a 0.2% increase in July. In the 12 months through August, the so-called core CPI rose 3.2%. That followed a 3.2% increase in July.
Some economists warned that the continued volatility of core inflation is a reason not to cut rates by half a percentage point next Wednesday.
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)
