Mixed CPI Inflation Numbers Signal Another 2023 Rate Hike Is Possible

Consumer Price Index inflation for the 12 months ending in August 2023 accelerated to 3.7% — an increase driven primarily by rising energy costs and related services. However, the Federal Reserve prefers to strip out food and energy cost. With this metric, inflation declined to 4.3%, continuing the disinflation trend in this version of the series since March 2023. That’s still well above the Fed’s 2% annual inflation target. The monthly inflation rate for August 2023 was 0.6% for headline inflation and 0.3% when stripping out food and energy.

The Fed will take some encouragement from some underlying trends in the CPI report, such as continued disinflation in shelter costs. That said, the Fed may still be tempted to consider a further 2023 interest rate hike, perhaps in November, to bring inflation down to its 2% goal faster. Another CPI report is scheduled for October 12 — a few weeks before the Fed makes any decision at its November 1 meeting. The Fed’s upcoming September 20 decision is largely expected to hold rates steady, both according to recent statements from Fed officials and the implicit forecast of interest rate futures.