Consumer prices rose 0.4% in August and are up 3.4% over the past year, the Bureau of Labor Statistics reported Friday, a reading that matched Wall Street’s expectations heading into next week’s Federal Reserve meeting.
Core inflation, which strips out volatile food and energy costs, climbed 0.3% for the month — a tenth of a point above forecasts — putting the annual core rate at 2.4%, in line with predictions. The July and August figures had both come in better than expected, continuing what had looked like a downward trend in prices.
Energy costs did most of the damage in August. Gasoline prices jumped 3.9%, accounting for more than a third of the month’s overall increase, as the broader energy index rose 2.1% amid rising tensions in the Middle East. Over the past year, energy prices are up 16.3%, with gasoline up 27.4% and fuel oil surging 52%.
Food prices rose a modest 0.1% for the month, with food at home flat, though the food index is up 2.7% over the past year. Shelter costs climbed 0.3%, picking back up after moderating the previous two months. Transportation services rose 0.5%, used cars and trucks rose 0.4%, and new vehicle prices increased 0.3%. Apparel prices, which are sensitive to tariffs, held flat, while motor vehicle insurance fell 0.8%.
Looking at the full year, the price increases break down as follows: fuel oil up 52.0%, gasoline up 27.4%, gas utilities up 4.4%, electricity up 3.8%, apparel up 3.6%, overall CPI up 3.4%, food away from home up 3.4%, shelter up 3.0%, medical care up 2.5%, transportation up 2.4%, food at home up 2.2%, and new cars up 0.6%.
What It Means for the Fed
The Federal Reserve’s rate-setting committee meets Tuesday and Wednesday, with markets pricing in an 87% chance of a quarter-point move, according to the CME FedWatch tool.
“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” said Chris Zaccarelli, chief investment officer for Northlight Asset Management, in a statement issued after the CPI data was released.
Administration Reaction
White House spokesperson Kush Desai said the report “reinforces how President Trump’s targeted policy interventions are paying off, with dramatic month-over-month price reductions for beef, prescription drugs, and car insurance.”
“These policies are having a lasting effect for everyday Americans,” Desai added, “and will continue delivering as energy supplies increase, markets stabilize, and overall inflation declines again.”
National Economic Council Director Kevin Hassett told interviewers after the report’s release that “inflation is clearly decelerating,” a trend he said matched his own economic model, and that the Fed would act on the CPI data as it saw fit. “I would say that you just about hit the target and inflation is decelerating,” Hassett said.
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