Inflation ticked up in August, but Fed rate cut remains in play amid weakening job market

U.S. inflation accelerated modestly in August, suggesting the Federal Reserve may have some leeway to cut interest rates at its September meeting.

Consumer prices rose an annual 2.9% in August, the Labor Department said on Sept. 11, up from a 2.7% annual increase in July. But a reading of “core inflation,” which ignores more volatile categories of spending, stripping out food and energy items, was at 3.1% for the second month in a row.

Both readings matched the consensus forecast from economists surveyed by Bloomberg, and come on the heels of reports that suggest the labor market is weaker than many experts previously believed.

More: The jobs reports were revised down by 911,000. What does it say about the economy?

As long as inflation remains tame, the central bank has the option of cutting rates to try to boost demand – and hiring – in the economy. As of Sept. 10, traders saw a 100% chance of rate cuts when the Fed meets September 17, with 90% expecting one 25-basis point cut and 10% forecasting two, according to the CME FedWatch tool.

The stock market has rallied in recent days as fresh economic data has spurred investors to reconsider their forecasts. The S&P 500 and Nasdaq closed at record highs on Sept. 10 after a report that showed cooler producer prices – what wholesalers pay for the goods they sell to consumers.

Even if inflation remains mild, it’s still well above the 2% target that the Fed sets for itself. And more importantly, between somewhat-high consumer prices and an iffy job market, many Americans continue to feel pinched.

Car repossessions are at the highest since 2009, fast food is so expensive that consumers are cutting back on their dining habits, and the effect of tariffs on coffee has pushed that commodity to nearly double in price in just five years.

Meanwhile, a closely-watched survey from the New York Fed released September 8 showed that respondents saw only a 44.9% probability of finding a new job if they lost their current one, the lowest reading on record back to 2013.

This article originally appeared on USA TODAY: Inflation ticked up in August; September Fed rate cut in play