Energy subcategory drives CPI increase, while accelerated core services diminish hopes for cooling inflation

(1) Following the previous sharp PPI increase driven by fuel prices, the market generally expects the US CPI to also show a significant month-on-month rise. The previous month’s CPI had declined, but with the rebound in energy prices, inflation is heating up again. (2) Some analysts had earlier warned that, against the backdrop of widespread interventionist comments, it would not be surprising if the finally released CPI data unexpectedly cooled to offset the impact of the PPI — and the data after release proved these analysts’ judgments were basically correct. (3) In August, the overall US CPI rose 0.4% month-on-month, exactly in line with market expectations and marking the largest monthly increase since May. Year-on-year, it increased by 3.5%, also matching expectations and remaining unchanged from the previous month. (4) Core service prices accelerated their rise, but fuel prices were the main driver of the overall increase in CPI. Similar to the PPI data released yesterday, the rebound in crude oil and refined oil prices caused energy components in the CPI to rise significantly. (5) The dual momentum from energy and core services means the path for inflation to subside is more complicated than expected. As a result, market bets on a Federal Reserve rate hike next week have become further entrenched, and expectations for a rate cut in the short term have virtually disappeared.