U.S. CPI Rose a Faster-Than-Expected 0.4% in August; Core Rate in Line

U.S. inflation for August came in hotter than expected, though likely not enough to derail the Federal Reserve from cutting interest rates next week.

The Consumer Price Index (CPI) rose 0.4% last month versus expectations for 0.3% and 0.2% in July. On a year-over-year basis, CPI was higher by 2.9% versus a forecast 2.9% and 2.7% in July.

Core CPI, which excludes the volatile food and energy components, climbed 0.3% in August against forecasts for 0.3% and July's 0.3%. Year-over-year core CPI rose 3.1% compared with the 3.1% forecast and July’s 3.1%.

Bitcoin slipped about 0.5% from $114,300 to $113,700 in the immediate aftermath of the data.

U.S. stock index futures gave up modest ground, now higher by just 0.1% across the board. The 10-year Treasury yield dipped about five basis points to 4.00% and the dollar strengthened a bit. Gold rose on the news, trimming an earlier loss of about 0.4% to 0.15% at $3,675 per ounce.

Perhaps tempering any downside move in the markets and surely responsible for that big dip in the 10-year Treasury yield, was the weekly Initial Jobless Claims report, released at the same time as the CPI. In that, jobless claims rose to a far worse than expected 263,000 from 236,000 the previous week. Forecasts were for just 235,000.

The two reports point to the difficult situation the U.S. central bank finds itself in, with the employment picture worsening, but the inflation rate refusing to turn lower.

Prior to the CPI data, markets were pricing in a 92% chance of a 25 basis point cut at the upcoming Fed meeting and an 8% chance of a 50 basis point cut, according to CME FedWatch. The inflation number likely puts to rest any idea of a 50 basis point move, which had gained steam following last Friday's soft jobs report and Wednesday's weak PPI numbers.