WASHINGTON, Sept 11 (Reuters) - U.S. consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Federal Reserve will raise interest rates next week.
The Labor Department's Consumer Price Index report on Friday followed strong readings in several components of the Producer Price Index released on Thursday that feed into the Personal Consumption Expenditures price indexes, the inflation measures the U.S. central bank tracks for its 2% target. Soon after the CPI data was published, financial markets priced in a roughly 91% chance of a rate hike next week, up from about 72% on Thursday, CME's FedWatch tool showed.
"It wasn't as hot as yesterday's PPI, but today's CPI left the Fed with less room to maneuver as it tries to maintain its inflation-fighting credentials," said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
The Consumer Price Index increased 0.4% last month after edging up 0.1% in July, the Labor Department's Bureau of Labor Statistics said. In the 12 months through August, consumer inflation advanced 3.4% after rising by the same margin in July. The rise in the CPI was in line with economists' expectations.
A 3.9% jump in gasoline prices after two straight monthly declines accounted for more than a third of the increase in the CPI over the month. Other motor fuels, which include diesel, surged 9.6%. Oil prices have climbed back above $100 a barrel, while diesel prices are at record highs, suggesting inflation was set to remain elevated and broaden out in the coming months.