• Prior was 3.4%
• Unrounded +3.397% vs +3.365% prior
• CPI m/m +0.4% vs +0.4% exp
• Prior CPI was +0.1%
• Unrounded CPI m/m +0.396% vs +0.074% prior

Core readings:

• Core y/y 2.4% vs 2.4% expected
• Prior core was 2.5%
• Core unrounded +2.446% y/y
• Core m/m +0.3% vs +0.2% expected
• Prior m/m +0.2%
• Unrounded +0.318% m/m vs +0.215% prior
• Core goods +0.11% m/m vs +0.2% prior
• Real weekly earnings +0.2% vs 0.0% prior (revised to +0.1%)
• Supercore +0.511% m/m vs +0.189% prior — highest since Jan
• Supercore +3.022% y/y vs +2.843%

Ahead of the report, the market was pricing in a 68% chance of a rate hike in September and 43.7 bps in hikes this year. USD/JPY was trading at 154.01 ahead of the report. The intial market reaction was buying the US dollar on the slight beat on core m/m.

After the report, the market is pricing in an 82% chance of a hike next week.

Key sub-components:

• Owners’ equivalent rent: +0.2% vs +0.3% prior
• Rent of primary residence: +0.2% vs +0.3% prior
• Motor vehicle insurance: -0.8% vs -0.3% prior
• Airfares: +2.7% vs +2.2% prior
• Used cars: +0.4% vs +0.4% prior
• Apparel: 0.0% vs +0.1% prior
• Medical care: -0.2% vs +0.4% prior
• Lodging away from home: +2.4% vs -2.8% prior
• Energy m/m: +2.1% vs -1.5% prior
• Gasoline m/m: +3.9% vs -2.9% prior
• Food m/m: +0.1% vs +0.1% prior
• New vehicles +0.3%, the largest since Dec 2024

A strange one is wireless telephone services, which were up 5.9% m/m. That’s the largest increase on record.

Gasoline alone accounted for 0.140pp of the 0.4% headline, but that’s no surprise. The way we’re going, that will be a significantly bigger number for September.

In terms of drags, motor vehicle insurance was -5.1% y/y, which is the lowest since Nov 2020 and health insurace was -8.5% y/y.

Update: In terms of market reaction, we’re seeing a reversal of the initial USD rally and a pickup in risk assets. That’s a counter-intuitive move as Fed funds futures continue to price in a more-hawkish path. The market is likely reacting to reports that Gulf countries are considering a plan that would let Iran and Oman control shipping through Hormuz, in a possible path to peace. That has oil prices down by $3.21 per barrel.