Inflation data lifts rate hike odds, stocks rebound

U.S. consumer prices increased 0.4% in August, leaving the Consumer Price Index up 3.4% over the past 12 months. The data show inflation running above the Federal Reserve’s stated 2% target on a headline basis, keeping attention on the trajectory of prices ahead of the central bank’s policy meeting next week.

Core CPI, which excludes food and energy, rose 0.3% in August and 2.4% compared with a year earlier. The core reading indicates underlying price pressures that are more moderate than the headline rate but still above levels seen earlier in the current cycle.

Energy costs played a central role in August’s inflation profile. The gasoline index climbed 3.9% during the month, making it one of the largest contributors to the overall CPI increase. The broader energy index advanced 2.1% in August and stood 16.3% higher than a year before.

These energy moves highlight the sensitivity of the monthly inflation data to fuel markets. While core prices grew more slowly, the jump in gasoline and energy underscored ongoing risks that volatile commodity costs can quickly influence the broader inflation picture.

Following the CPI release, traders increased bets that the Federal Reserve will raise interest rates by 25 basis points at next week’s meeting. Market-derived probabilities from the CME FedWatch tool moved into the mid-80% range for such a move, reflecting a stronger conviction that the central bank will opt for tighter policy.

The combination of a firm headline CPI reading and still-elevated annual inflation reinforced expectations that policymakers will seek to restrain demand further. Market commentary pointed to the latest data as clearing the way for an incremental rate increase rather than a pause.

Even as energy components supported higher inflation in August, oil prices eased during the trading session. Brent crude declined roughly 2–3% to about $104–105 a barrel after having approached $110 overnight, offering some relief to investors focused on the inflationary impact of earlier oil strength.

The pullback in Brent crude suggested that at least part of the recent run-up in energy prices could be reversing in the near term. This moderation helped temper concerns that August’s strong energy readings would automatically translate into similarly large increases in coming months.

U.S. stock benchmarks rose following the CPI release and the retreat in oil prices. The S&P 500 (SPX) gained about 1%, while the Nasdaq advanced roughly 1.1–1.2% in early-to-mid session trading. The Dow Jones Industrial Average (DJIA) was higher by several hundred points in intraday snapshots.

The equity rebound occurred despite higher implied odds of a near-term rate hike, suggesting investors were encouraged that the inflation data were broadly in line with expectations and that oil prices had eased from overnight highs. Together, these factors helped stabilize sentiment after earlier concern about energy-driven inflation pressures.