Inflation persisted in August, potentially locking in a Fed interest rate hike

JUST IN: US inflation rose 3.4% in the year to August, holding steady and potentially locking in another Federal Reserve interest rate hike. Odds of a quarter-point hike next week jumped to about 90%.

Inflation just refused to budge, and the Fed's hand may be forced.

US consumer prices rose 3.4% in the year to August, with a 0.4% jump on the month. Core inflation, the number the Fed actually stares at, came in hotter than forecast. And traders didn't hesitate. Odds of a quarter-point rate hike next week leapt from about 70% to roughly 90% within minutes of the release.

The villain here is energy. Gasoline alone jumped 3.9% in a month and drove over a third of the whole increase, with the Middle East keeping oil on edge. Chairman Kevin Warsh has been saying rates stay on hold only if inflation keeps falling. It didn't. His own words, if the numbers don't improve, we have work to do. The work, it seems, has arrived.

So after sitting at 3.5 to 3.75% all year, the Fed meets Wednesday with a market that's already made up its mind.

This is Sara White, reporting for HIT.