A rebound in gasoline prices after two consecutive months of decline pushed the US consumer price index (CPI) higher in August, reinforcing market expectations that the Federal Reserve will raise interest rates at its policy meeting next week, according to data released Friday by the Bureau of Labor Statistics.

The consumer price index rose 0.4% month-over-month last month, matching forecasts, after a modest 0.1% gain in July. On an annual basis, CPI increased 3.4%, in line with expectations and matching the pace seen the previous month. Excluding the volatile food and energy components, the core CPI climbed 0.3% from July, slightly above both the anticipated and prior reading of 0.2%. Year-over-year, core inflation advanced 2.4% in August, meeting projections but decelerating from July's 2.5% rise.

Thursday's data showed the producer price index (PPI) edged up in August, with notable strength in several key components that feed into the PCE inflation calculation. Combined with last week's robust jobs report, these figures have heightened the likelihood of a rate hike next week.

Previously, Fed Governor Christopher Waller had signaled a preference for holding rates steady if data confirmed inflation pressures were cooling, which had temporarily reduced expectations for an increase. However, oil prices climbed back above $100 per barrel on Thursday, while diesel prices hit record highs, suggesting inflation is likely to remain elevated and could accelerate further.

Some economists argue that tariff hikes on imported goods, most recently targeting Canada—one of the nation's largest trading partners—will continue to sustain price pressures. Public dissatisfaction with high costs, particularly for gasoline and food, has weighed heavily on President Donald Trump's approval ratings and threatens to cost his Republican Party control of Congress in November's midterm elections.

Following Thursday's PPI release, economists' forecasts for the core PCE price index in August ranged from a 0.15% to 0.28% monthly increase, compared to July's 0.2% gain. Year-over-year projections for core PCE inflation fell between 3.2% and 3.3%, down from July's 3.3% rise. The August PCE report will also incorporate methodological adjustments that some analysts believe could shave a few basis points off the core inflation reading.

Prior to the CPI release, financial markets priced in roughly a 70% probability of a quarter-point rate hike at the Fed's September 15-16 meeting, according to the CME's FedWatch tool. The central bank's benchmark overnight rate currently stands in a range of 3.50% to 3.75%.

Fed Chair Kevin Warsh said last month that the central bank would still have "work to do" if policymakers cannot gain confidence that inflation is trending toward the 2% target. However, Trump has been applying pressure on the Fed to cut rates, posting on social media last week: "Lower rates, or I will stop trading with countries that have trade deficits with us." Economists have attributed a surge in long-term Treasury yields to this so-called "political intimidation," with some now expecting the Fed to tighten policy next week partly to demonstrate its independence.