August saw a higher than anticipated increase of 0.3% in US core inflation.

• The Consumer Price Index (CPI), which measures the prices of various goods and services, experienced a 0.6% increase in the given month.
• The core CPI data indicates a 0.3% rise during the month.
• The annualized CPI grew by 3.7%, slightly exceeding the predicted 3.6% increase.  

Inflation Surges in August with Energy Leading the Way

1. August witnessed the highest monthly increase in inflation this year, primarily driven by rising energy prices and various other goods.
2. According to the U.S. Department of Labor, the consumer price index (CPI) rose by 0.6% in August, reflecting a 3.7% year-on-year increase in line with Dow Jones economist projections.

Examining Key Sectors

1. When excluding food and energy, the core CPI increased by 0.3% during the month and 4.3% year-on-year, providing a clearer indication of long-term inflation trends.
2. Energy prices experienced a significant surge, with a 5.6% monthly jump, driven by a notable 10.6% increase in gasoline prices.
3. Food prices saw a modest increase of 0.2%, while shelter expenses, comprising a significant portion of the CPI weight, climbed by 0.3%.

Market Reactions and Impact on Worker Earnings

1. The stock market initially dipped but quickly recovered in response to the inflationary rise, while Treasury yields increased.
2. However, this surge in inflation impacted worker earnings negatively, with real average hourly wages declining by 0.5% in August. Nevertheless, wages remain 0.5% higher compared to the previous year, according to the Labor Department.

Federal Reserve's Measures to Combat Inflation

1. The spike in inflation has prompted the Federal Reserve to devise long-term solutions, with the central bank already raising its benchmark borrowing rate by 5.25 percentage points since March 2022.
2. While there was initially a tendency towards aggressive monetary policy tightening, current discussions among officials indicate a more cautious approach to future rate increases.

Anticipating Future Actions by the Federal Reserve

1. The market is currently in a state of anticipation, with expectations that the Fed might avoid a rate hike at the upcoming meeting. However, future predictions remain uncertain.
2. According to CME Group data, traders perceive a 44% probability of one last rate hike in November.