Inflation held steady in August as Iran war surges oil prices

Inflation remained unchanged in August as gas prices continued to rise amid the war with Iran, new data from the Bureau of Labor Statistics (BLS) showed Friday .

The consumer price index (CPI) increased 0.4 percent last month and 3.4 percent over the same time last year. This was unchanged from July, when the annual inflation rate also sat at 3.4 percent .

The popular inflation gauge was expected to rise 0.4 percent in August and hold steady at 3.4 percent year over year, according to the Federal Reserve Bank of Cleveland’s “Nowcast” on Thursday.

Gas prices accounted for more than a third of the monthly increase, rising 3.9 percent in August alone, according to BLS. Energy prices overall ticked up 2.1 percent last month.

Core CPI, which excludes more volatile food and energy prices, was up 0.3 percent in August and 2.4 percent year over year.

The latest inflation data will be a crucial factor in determining the Federal Reserve’s interest rate decision next week.

Investors were pricing in a nearly 70 percent chance that the central bank will hike rates by a quarter point as of Thursday afternoon, according to the CME FedWatch tool , which tracks bets placed on future Fed decisions. As of Friday morning, this had shifted to almost an 87 percent chance of a hike.

Friday’s core CPI reading “combined with the sharp rise in energy prices and persistent tensions with Iran, all but locks in a Fed rate hike next week,” said Seema Shah, chief global strategist at Principal Asset Management.

“The debate has quickly shifted from whether the Fed will hike to the more important question of how many hikes this cycle will ultimately require,” she added in a statement.

Chris Zaccarelli, chief investment officer for Northlight Asset Management, similarly noted that even as there’s “no guarantee” the central bank will raise rates next week. He added that “it’s hard to see how the central bank can justify leaving rates on hold.”

The Fed, which has held rates steady for five straight meetings , was already facing growing pressure to raise rates after the August jobs report came in stronger than expected last week.

BLS data showed that U.S. employers added 162,000 jobs last month, while the unemployment rate remained unchanged at 4.1 percent. The bureau also revised both the June and July numbers upward by a combined 55,000 jobs.

A stable labor market allows the Fed to shift its focus toward tamping down inflation, which has stubbornly remained above the central bank’s target of 2 percent.

“On the employment side of the Fed’s dual mandate, our country is doing well,” Fed Chair Kevin Warsh said at the central bank’s annual retreat in Wyoming last month.

The Fed chair later said that if underlying inflation was not “moving toward our objective,” the central bank had “ work to do .”

The bank’s preferred measure of inflation, the personal consumption expenditures price index, showed prices up 3.7 percent year over year in July.

Annual inflation, as measured by the CPI, has remained above 3 percent since March — after the Iran conflict started in late February, which has sparked a global rise in oil prices .

The price of Brent crude oil , the international benchmark, was trading at just more than $107 per barrel as of Thursday afternoon. West Texas Intermediate crude , the North American benchmark, sat at about $102 per barrel.

President Trump has long urged the Fed to cut interest rates, dating back to the tenure of former Chair Jerome Powell. After the BLS released its August jobs report last week, Trump threatened to cut off trade with several countries if the central bank did not cut rates.

“The Fed Board, with its great new leader, must get smart — BE PATRIOTS for a change,” Trump wrote on Truth Social .

Vice President Vance joined with the president last week, saying the Fed should lower interest rates to tamp down mortgage rates .

“We’re doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve,” Vance told reporters last Thursday.

As a result, Warsh finds himself in a tight spot just under four months into the job as Fed chair.

“It is said that all Fed Chairs are tested within their first six months and with bond yields rising, inflation showing no signs of cooling, and a President who is calling for rate cuts (and will be incensed at rate hikes), Chairman Warsh is stuck between a rock and a hard place,” Zaccarelli said in a statement.