A fresh reading on inflation showed monthly prices rose more than expected in August, increasing the likelihood the Federal Reserve will raise interest rates next week.

A rebound to $100-a-barrel oil also complicates the picture.

Stripping out volatile food and energy prices — the way the Fed likes to scrutinize underlying inflation — the Consumer Price Index rose 0.3% month over month, compared with expectations for 0.2%. The year-over-year rate was in line with expectations for 2.4%, and down a tenth of a percentage point from July. On a headline basis, CPI rose 3.4% in August, in line with expectations, and 0.4% month over month.

“The upside surprise to core CPI in August means the Fed looks set to hike next week,” said Stephen Brown, North America chief economist for Capital Economics.

Markets are now betting on a 90% chance of a rate hike at Wednesday’s Fed policy meeting, according to CME FedWatch.

Officials will take this latest inflation data to look at the trends over the past three, six, and twelve months to help assess whether price pressures are easing.

Fed officials have been divided about whether inflation is falling back down to their 2% goal on its own or whether they need to raise rates. Friday’s data will fuel hawks like Cleveland Fed president Beth Hammack and Dallas Fed president Lorie Logan, who argue that inflation is broad-based and that without increasing rates, it won’t come down on its own.

It may also not be enough to satisfy officials like Fed Governor Chris Waller, who argued last Thursday that if August figures show inflation is coming down and core prices rose 0.2%, he would support holding rates steady next week.

“If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level,” Waller said on September 3. “But if inflation comes in hot, I would consider a rate hike. I judge that policy is currently only slightly restricting aggregate demand, and it may not take much acceleration in inflation to nudge me into supporting tighter policy.”

Fed Chairman Kevin Warsh said in a speech in Jackson Hole last month that inflation is too high and that rates are not restricting borrowing in the economy, outside of housing. He noted that June and July readings on inflation that had shown some progress hadn’t been enough for him to mark the improvement he needs to see that inflation is coming down.

New York Fed president John Williams has said that if monthly readings on inflation consistently came in at 0.2% on the Personal Consumption Expenditures Index (PCE) — another inflation measure and the Fed’s favored yardstick — then that would indicate inflation is coming down.

Fed officials will use CPI along with data on wholesale prices released Thursday to back into estimates for PCE.

Capital Economics economist Brown estimates core PCE rose by 0.27% month over month in August, with that figure unlikely to be affected much by the forthcoming revisions to the portfolio management and software and accessories price calculations. Without taking those revisions into account, that monthly estimate implies that annual core PCE inflation would rise from 3.3% in July to 3.4%.

“In short, core PCE inflation is moving in the wrong direction, and that should be enough for the centrists on the FOMC such as Governor Christopher Waller to support a hike next week,” said Brown.

The surge in oil over the past week also threatens to reframe the Fed debate.

“The policy question is now not so much whether August CPI broadly confirms the summer improvement in the inflation data but rather whether that summer improvement provides sufficient reassurance for the Fed to look through a renewed oil supply shock with outsized impact on diesel and other refined products,” said Krishna Guha, head of central bank strategy and economics for Evercore ISI.

Standard procedure is for the Fed to look through oil price shocks and focus on underlying inflation dynamics. However, with inflation having remained above their 2% goal for five and a half years and the oil price shock coming on top of a series of shocks from tariffs to the war in Ukraine and the pandemic, they’re unlikely to be able to continue looking through it.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance, she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.