US inflation held steady at 3.4% in August as high fuel prices continued to reverberate through the economy, prompting traders to increase bets on a rate rise from the Federal Reserve next week. Friday's annual consumer price index figure from the Bureau of Labor Statistics was unchanged from July's level and in line with the expectations of economists polled by Bloomberg. Core inflation, which strips out volatile food and energy prices, was 2.4%, down slightly from a 2.5% rate in July.

Friday's report comes amid a fresh surge in oil prices driven by the conflict in the Middle East. Brent crude surpassed $100 a barrel this week for the first time since July, sparking a global bond sell-off that pushed US long-term borrowing costs to their highest level in years. Elevated fuel prices remained the biggest driver of inflation in August, with gasoline accounting for a third of the monthly rise of 0.4%.

"We're going to a hike now," said Kurt Lewis at Piper Sandler. "This was a case where everybody was, like, one more bad thing has to happen, and then we're ready to go. And I think this is enough of that." The report comes ahead of a hotly anticipated meeting of the Fed's policy-setting committee next Tuesday and Wednesday.

Following Friday's data, traders added to bets that the Fed will have to raise interest rates. Expectations of a rise in September increased from roughly 70% before the data to more than 80% after the release.