• US consumer prices rose 0.4% in August, leaving headline inflation at 3.4% for a second month, while core prices rose 0.3%, above consensus, and the annual core rate eased to 2.4% from 2.5%. Both measures remain clearly above the Federal Reserve's 2% target.

• Producer prices rose 0.4% on the month and 5.4% over the year, driven overwhelmingly by energy, with diesel up 24.1%. Core producer prices were softer at 0.2%, but annual rates of 4.6% remain elevated, and intermediate goods prices are up 11.5% year-on-year.
• August was an energy-driven print on both measures, yet the monthly detail shows no convincing downward trend in services and neither in several indicators for underlying price pressures. Margins are currently absorbing part of the energy shock, which delays pass-through to consumers but compresses corporate profits.
• We put the probability of a September hike clearly above 50%, while acknowledging that the FOMC may still hold. A hike in December, or even in October, is increasingly plausible if energy price do not abate soon and demand is not cooling.

US consumer prices rose 0.4% in August, after 0.1% in July, leaving the annual rate at 3.4% for a second month. Gasoline did most of the work: it rose 3.9% on the month and accounted for more than a third of the all-items increase, with energy up 2.1% on the month and 16.3% over the year. Beneath the headline, the picture is more mixed. Core prices, all items less food and energy, rose 0.3% after 0.2% in July – above the consensus forecast. The annual core rate, however, eased to 2.4% from 2.5%, as markets had anticipated. Shelter prices rose 0.3% after 0.1% in both June and July, though owners' equivalent rent rose only 0.2%; the acceleration came from lodging away from home. Other gains were narrow: communication rose 2.3%, airline fares 2.7% and education 0.8%. Core goods added just 0.1%, with used cars up 0.4% and new vehicles 0.3%. Offsetting these, medical care fell 0.2% and motor vehicle insurance 0.8%. Food rose 0.1% and food at home was unchanged. In short, an energy-driven headline print sitting on a core that is still easing year-on-year, but with monthly changes that do not yet show a convincing downward trend, particularly in services. Underlying price pressures remain evident in the annual rates for services less rent of shelter and for services less energy services. The disinflation in rents, on the other hand, looks genuine, and the travel and communication gains are the most likely to reverse. The levels nonetheless remain uncomfortable: at 3.4% headline and 2.4% core, annual consumer price inflation is still clearly elevated, and both measures sit above the Federal Reserve's 2% target.