U.S. Core Inflation Rose 0.3% in August, Faster Than Anticipated

While the headline U.S. Consumer Price Index (CPI) came in as expected last month, the core rate rose more than economist forecasts, likely sealing the deal for the Federal Reserve to cut its benchmark lending rate by just 25 basis points next week.

The CPI rose 0.2% in August versus economist forecasts for 0.2% and 0.2% in July. On a year-over-year basis, CPI was higher by 2.5% against expectations for 2.6% and 2.9% in July.

Core CPI – which excludes food and energy costs – rose 0.3% in August, faster than a forecast 0.2% and 0.2% in July. The core rate year-over-year was 3.2% against an anticipated 3.2% and 3.2% in July.

Down marginally for the day coming into the inflation print, the price of bitcoin (BTC) fell a bit more in the minutes following the news, now lower by 1.5% over the past 24 hours to $56,500.

In traditional markets, U.S. stock index futures have added a bit to losses, with the both the S&P 500 and Nasdaq down 0.5%. The U.S. 10-year Treasury yield has gained 3 basis points to 3.68% and the dollar index has risen 0.15%. The price of gold has dipped 0.45% to $2,532 per ounce.

Ahead of the data, investors had priced in a 71% chance the Fed would trim its benchmark fed funds rate range by 25 basis points to 5%-5.25% when it meets next week, with a 29% chance the central bank cuts by 50 basis points to 4.75%-5%, according to CME FedWatch. The stubborn persistence of core inflation reflected in this morning’s report – which monetary policymakers often prefer versus the headline number – is likely to solidify expectations of the Fed moving by the lower amount.

Indeed, 15 minutes following the CPI release, the chances of the Fed cutting by 25 next week has jumped to 85%. A check of months further out finds the odds that the Fed slashes rates by just 75 basis points by year-end has risen to 14% versus 9% one day ago.