Headline US consumer inflation jumped by more than expected in August, and core price growth gained momentum, putting upward pressure on short-term yields as market participants bet the Federal Reserve would continue tightening at an aggressive pace. According to data released by the Bureau of Labor Statistics this morning, the consumer price index climbed 8.3 percent in August from the same period last year, up 0.1 percent on a month-over-month basis. Economists polled by major data providers expected an 8.1 percent annual gain and a -0.1 percent decrease relative to July’s flat month-over-month number.

A -5 percent month-over-month drop in energy prices — helped by an -10.6 percent tumble in the gasoline sub-index — failed to offset increases in driving the all-items index higher.

With highly-volatile food and energy components excluded, core prices rose 6.3 percent year-over-year, up 0.6 percent over the prior month. This was substantially faster than the 0.3 percent increase markets had expected.

New vehicle prices ratcheted 0.8 percent higher after rising 0.6 percent in July, and the index for used cars and trucks fell just -0.1 percent. Shelter costs gained momentum, rising 0.7 percent, as rents and owners equivalent measures moved up by more than expected. Non-energy services inflation increased 0.6 percent, with transportation up 0.5 percent, and medical care 0.8 percent higher. Airfares plunged -4.6 percent from the prior month.

Two- and ten-year bond yields surged higher after the data hit the wires, and the dollar smashed upward. Equity indices are tumbling, commodity-linked currencies are beating a full retreat, and the euro is falling toward support levels just above parity.

Post-release implied market pricing suggests odds on a 75 basis point hike at next week’s Federal Reserve meeting remain at near-certain levels, but terminal rate expectations are pushing higher as investors raise forecasts for hikes in the autumn months. A 50 basis point move at the November meeting looks increasingly likely.

Karl Schamotta, Chief Market Strategist