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.