Underlying consumer price growth accelerated in the United States last month, strengthening the case for a rate hike at the Federal Reserve’s September meeting, and adding to the dollar’s upward momentum. According to data published by the Bureau of Labor Statistics this morning, the core consumer price index—with highly-volatile food and energy prices excluded—rose 0.3% in August, accelerating from a 0.2% rise in the prior month, and climbing 2.4% over the same period last year. The more-volatile all-items headline price measure climbed 0.4% from July as gasoline prices climbed, rising 3.4% in year-over-year terms. This combination topped the consensus estimates among economists polled by the major data providers ahead of the release.

Treasury yields are edging up on the policy-sensitive front end of the curve, equity futures are pointing slightly lower than ahead of the release, and the dollar is advancing against its major rivals as market participants add to bets on a rate hike at next week’s Fed meeting.

The release comes after a sell-off in bond markets yesterday catapulted ten-year Treasury yields above 4.97%—within a hair’s breadth of the symbolically important 5% threshold. Four forces were at work. Benchmark global oil prices jumped to more than $109 a barrel after Iran-backed Houthi militants seized a port city on Yemen’s coast, threatening to worsen the global supply disruption. A report showed a slight acceleration in US wholesale price growth in August, reinforcing expectations for a rate hike next week. The European Central Bank raised rates and lifted inflation forecasts, setting the stage for further tightening in the months ahead. And Trump administration officials took to the airwaves to promote the president’s plan to send every American a $5,000 cheque if Republicans win both chambers in the midterms—a proposal that could add more than a trillion dollars to US debt and stoke further inflation.

In our view, the balance of risks facing the Fed now favours raising rates. With core price growth showing signs of accelerating, oil benchmarks up more than 78% this year, tariffs rising once again, Washington floating fiscal giveaways, and artificial intelligence investment still flowing, there’s little to suggest that inflation pressures are set to ease in the months ahead, giving officials little choice but to take action now. Futures traders agree, with prices now showing a 90% probability of a quarter-point increase next Wednesday, up from 70% before the release.