Consumer price inflation accelerated in the United States during August, with gasoline prices returning to rise after falling for two consecutive months, which strengthened financial market expectations that the Federal Reserve would raise interest rates next week.
The Labor Department's Bureau of Labor Statistics said Friday that the consumer price index rose 0.4 percent last month, after a slight increase of 0.1 percent in July. On an annual basis, consumer price inflation rose by 3.4 percent during the 12 months ending in August, the same rate as in July.
Economists polled by Reuters had expected the consumer price index to rise by 0.4 percent on a monthly basis and 3.4 percent on an annual basis. Excluding the volatile food and energy components, the index rose 0.3 percent last month, after a 0.2 percent increase in July. The so-called core consumer price index also rose by 2.4 percent year-on-year in August, compared to an increase of 2.5 percent in July.
The Federal Reserve adopts personal consumption expenditure price indices to measure the extent to which the inflation target of 2 percent is achieved.
On Thursday, the government announced that the producer price index rose in August, with strong increases recorded in several key components that go into calculating personal consumption expenditure inflation. This data, along with last week's strong August employment report, boosted the odds of a rate hike next week.
The odds of raising interest had declined earlier following statements by Federal Reserve Board of Governors Christopher Waller during the Reuters Next event last week. He indicated his tendency to support keeping interest rates unchanged if the data confirm that inflationary pressures have begun to recede.
Oil prices rose again, exceeding $100 per barrel on Thursday, while diesel prices reached record levels, indicating that inflation is likely to remain at high levels and spread to broader sectors.
Growing dissatisfaction with inflation
Some economists believe that price pressures will continue due to import tariffs, most recently those imposed on Canada, which is one of the United States' largest trading partners.
Dissatisfaction with rising prices, especially gasoline and food prices, has led to a sharp decline in support for President Donald Trump, and may cost his Republican Party control of the US Congress in the midterm elections scheduled for November.
Following the release of the Producer Price Index data on Thursday, economists' estimates for the core PCE price index for August ranged from a minimum of 0.15 percent to a maximum of 0.28 percent. The core personal consumption expenditures inflation rate rose 0.2 percent in July.
Estimates of the annual increase in this indicator ranged between 3.2 and 3.3 percent, noting that it recorded an increase of 3.3 percent during the twelve months ending in July.
The August PCE inflation report will include changes in methodology, a move that some economists believe could lower the core inflation rate by a few basis points.
After the data on Friday, traders strengthened their bets that the Federal Reserve will raise short-term interest rates during its meeting next week. Traders’ estimates currently indicate a probability of about 85 percent to raise interest rates by a quarter of a percentage point during the Federal Reserve meeting scheduled for September 15 and 16, up from about 70 percent before the release of inflation data.
Kevin Warsh, Chairman of the Federal Reserve, said last month that the central bank “will have work to do” if policymakers do not gain the necessary confidence that inflation is heading down to the 2 percent level. However, Trump is putting pressure on the Federal Reserve to lower interest rates. Last week, he wrote on social media: “Lower interest rates, or I will stop trading with countries with which we have a trade deficit.”
Economists attributed the sharp rise in long-term US government bond yields to what they described as “political intimidation,” while some expected the Federal Reserve to tighten monetary policy next Wednesday to confirm its independence.
The Turkish Central Bank revised its consumer price inflation expectations to 29.61 percent by the end of this year.
The bank also revised its inflation forecast in 12 months to 23.70 percent, and 18.32 percent after 24 months.
The results of the market participants’ opinion poll for the current month of September, in which 67 representatives of the real and financial sectors participated, which were published on Friday, showed an increase in the expected increase in the consumer price index for September to 2.12 percent, compared to 2.08 percent in the last August poll.
An upward trend in inflation
The expected increase in the CPI by the end of the year increased from 29.43 percent in the August survey to 29.61 percent in the August survey, and increased from 23.69 percent to 23.70 percent relative to expectations after 12 months, and from 18.03 percent to 18.32 percent after 24 months.
Annual inflation in consumer prices recorded a slight decline last August, slightly less than previous expectations, while monthly inflation continued to rise in light of continued pressure on energy prices and fluctuations resulting from the Iran war.
According to data issued by the official Turkish Statistical Institute, the monthly inflation rate rose by 1.84 percent in August, slightly contradicting previous expectations, while the annual inflation rate reached 31.51 percent. Monthly inflation in July recorded an increase of 1.78 percent, while the annual rate reached 31.75 percent.
The Turkish government raised its inflation expectations at the end of this year to 28.4 percent, in an amendment that reflects the direct and indirect effects of the war with Iran on energy and commodity prices, pledging to adhere to its policies aimed at returning inflation to single digits by 2029, in parallel with accelerating economic growth to 5 percent.
Turkish Vice President Cevdet Yilmaz said, during the presentation of the government’s medium-term economic program for the period 2027-2029, last Sunday, that combating inflation took longer than expected as a result of the repercussions of the Iran war. Pointing out that the direct and indirect effects of the conflict on inflation are estimated at about 7 percent, according to Central Bank estimates.
Interest and growth expectations
The bank fixed, for the fifth time in a row, the one-week repurchase interest rate (repo), which is the basic standard for interest rates, at 37 percent, driven by inflation indicators and fluctuations in energy prices as a result of the Iran war.
At its sixth meeting of the current year, on Thursday, the bank’s Monetary Policy Committee kept the overnight lending interest rate at 40 percent, and the overnight borrowing interest rate at 35.5 percent, without change. The bank contradicted previous expectations by reducing interest rates by 100 basis points to 36 percent.
The committee said, in a statement after the meeting, that despite monthly fluctuations, the latest inflation figures and leading indicators indicate a decline in the general trend of inflation, and that economic activity data and the limited impact of supply shocks on local prices confirm weak domestic demand.
The statement pointed out that, on the other hand, rising energy prices resulting from geopolitical developments pose an upward risk to inflation expectations, and that the effects of these developments on inflation expectations are being closely monitored through cost, economic activity and expectations channels.
According to a survey of market participants, expectations for the base interest rate for the next meeting of the Central Bank’s Policy Committee, on October 22, fell from 37 to 36 percent, for the next meeting to 35.07 percent, and after 12 months to 29.22 percent.
Expectations of the exchange rate of the dollar against the Turkish lira at the end of the current year decreased from 51.65 to 51.57 liras to the dollar, while their expectations for the exchange rate during the next 12 months increased from 57.42 to 58.60 liras to the dollar.
Expectations for the current account deficit at the end of the year, which amounted to $50.2 billion in the previous survey period, fell to $50.1 billion, and expectations for next year also decreased from $44.444 billion to $44.368 billion.
As for growth expectations for the current year, they fell to 3 percent from 3.9 percent, while expectations for next year decreased from 4 to 3.9 percent.
Russia's central bank kept its key interest rate at 14 percent on Friday, a week before a parliamentary election that the Kremlin is closely watching as a barometer of public anxiety and public fatigue after four-and-a-half years of war in Ukraine.
The Russian economy, with a size of $2.6 trillion, witnessed a sharp slowdown over the past year, and is expected to record growth barely exceeding zero in 2026, under the pressure of a rise in the key interest rate, Western sanctions, and Ukrainian strikes targeting economic facilities, in addition to the strength of the ruble.
The decision to maintain the interest rate was in line with analysts' expectations in a Reuters poll.
The central bank said in a statement: “The economy as a whole is growing at a moderate pace in the third quarter of 2026. Current price pressures have increased significantly in recent months.”
Companies pressured the central bank to lower interest rates, arguing that borrowing for investment purposes was no longer feasible at current levels, and that growth would not regain momentum unless the key interest rate fell below 12 percent. On the other hand, the bank confirmed that investment is witnessing a recovery compared to the beginning of the year, despite interest rates remaining at their current levels.
Russia and Brazil record the highest key interest rates among the countries of the BRICS group of major developing economies, whose leaders, central bank heads and finance ministers are scheduled to meet in New Delhi this weekend.
Decrease in production capacity
The inflation rate rose again in June, after declining earlier in the year, following drone attacks that targeted refineries and caused fuel shortages and price jumps, which led to higher costs in various sectors of the economy due to increased transportation expenses.
The Central Bank indicated that the Ukrainian strikes that targeted refineries and e-commerce warehouses were among the main factors behind the rise in prices, describing this as “the effect of a temporary decline in production capabilities in certain sectors.”
The budget deficit, which the Central Bank considered one of the factors fueling inflation, fell to 2.5 percent of GDP in August, from 2.8 percent in the previous month, supported by the flow of dividend income from the state’s stakes in banks.
The deficit may shrink further as global oil prices return to rising and exceed the $100 per barrel barrier in light of the continuation of the US-Iranian conflict, as the Russian budget benefits, as the country is a major oil producer, from the rise in crude prices.
However, a tax mechanism aimed at protecting prices from fuel fluctuations will limit the transmission of this rise to domestic inflation rates.
With the deficit already exceeding its target level for the full year, the government chose not to resort to the expanded spending wave it followed ahead of the 2021 parliamentary elections and the 2024 presidential elections.
As for the ruble, whose strength helped the central bank curb inflation by reducing import costs, its value fell by 17 percent from its peak recorded on May 20, before it began to recover this week with the support of rising oil prices.
