Inflation heated up last month, boosting the case for a Fed rate hike

By Elisabeth Buchwald, CNN

(CNN) — Consumer prices rose at a 3.4% annual rate last month, the same pace as July, according to the latest Consumer Price Index from the Bureau of Labor Statistics.

That likely strengthens the case for a Federal Reserve rate hike to tame inflation and prevent price increases from becoming more entrenched.

Inflation has accelerated since the war with Iran began, and central bankers are watching to determine whether price pressures are spreading through the economy. Fed officials are set to meet next week to decide the next move on interest rates.

On a monthly basis, prices rose 0.4%, an acceleration from July’s 0.1% rate. Gasoline prices, up 3.9%, accounted for a third of the monthly price increase.

But for the Fed, the most worrisome aspect of August’s inflation report is likely the evidence that inflation has spread beyond the pump. When stripping out food and energy costs, so-called core inflation rose 2.4% in the 12 months ending in August, down from 2.5% in July. On a monthly basis, core rose 0.3%.

After the release of Friday’s report, traders boosted the odds of a rate hike to 90% from 70% the day before, according to CME FedWatch.

Tech prices surge

Some of the largest price increases stemmed from tech. Computer software and accessory prices rose 25.4% for the 12 months ended in August, the largest annual price increase recorded. Computers and smart home assistants cost 8.4% compared to a year ago.

Meanwhile, smartphone prices were down 12.2% versus the prior year. Earlier this week, though, in addition to announcing its new line of iPhones, Apple said it was raising prices of older models by $100. The price increases are tied to surging costs of producing chips, a byproduct of the booming demand of AI.

This story is developing and will be updated.

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