The US Consumer Price Index (CPI) increased by 0.4% in August, accelerating from July’s 0.1% rise and meeting the Dow Jones consensus forecast. Annual inflation also matched predictions, with headline prices climbing 3.4% compared to a year earlier. The latest data arrives just days before the Federal Reserve’s policy meeting, where the central bank is expected to decide on whether to adjust its benchmark interest rate.
Core CPI and inflationary pressures
Core CPI, which excludes the often-volatile categories of food and energy, rose 0.3% in August—above economists’ expectations of 0.2% and up from July’s 0.2% gain. On an annual basis, core inflation eased slightly to 2.4%, matching forecasts but remaining above the Fed’s target.
This monthly jump in core prices adds to calls for tighter monetary policy, as Fed officials continue to monitor signs of persistent inflation before their next decision. The upcoming Fed meeting will conclude Wednesday, with the outcome seen as a key indicator of the central bank’s stance.
Gasoline and energy prices contribute to gains
Energy costs were a major driver of August’s headline inflation, with gasoline prices surging 3.9% during the month. This accounted for more than a third of the overall increase in consumer prices. The broader energy index jumped 2.1% in August and is now up 16.3% compared to a year ago.
Food prices remained relatively stable, as the food index inched 0.1% higher, mirroring the previous month, with home food prices unchanged. Still, the mix of sticky core inflation and higher energy costs has complicated the policy outlook facing the Fed.
Stock futures initially responded positively to the data, with S&P 500 futures up 0.5% and Nasdaq futures gaining 0.7%. However, market participants remain focused on the likelihood of a rate increase.
| Category | August Change | Year-over-year Change |
|---|---|---|
| CPI (Headline) | +0.4% | +3.4% |
| Core CPI | +0.3% | +2.4% |
| Gasoline | +3.9% | — |
| Energy Index | +2.1% | +16.3% |
| Food Index | +0.1% | — |
Following the release of the Producer Price Index last week, traders increased the probability of a 0.25 percentage point rate hike at the Fed’s next meeting to over 73%, according to CME Group’s FedWatch tool.
Brent crude oil traded above $100 per barrel, fueled by heightened tensions involving Iran, further boosting concerns about input prices affecting the broader economy.
Mini dictionary: CME Group’s FedWatch — A widely used futures-based tool that enables traders to gauge expectations for upcoming US Federal Reserve policy decisions, particularly interest rate changes.
Economists urge action as inflation risks grow
Joseph Brusuelas, principal and chief economist at RSM US, underscored that recent inflation readings signal the need for tighter policy action from the Federal Reserve. He cited not only rising oil and distillate prices, but also the combined effects of war-driven energy shocks, tariffs, and increased demand for commodities from artificial intelligence investments.
Brusuelas contends that persistent shocks from energy, tariffs, and commodity draws for AI infrastructure are reinforcing inflation throughout the US economy, influencing costs from groceries to transportation.
He called for policymakers to move beyond traditional approaches to supply shocks, arguing that the continued increases in prices for gasoline, diesel, and jet fuel are filtering into consumer and services prices nationwide.
Cautions over Fed credibility
Brusuelas stated that the Fed should reverse the three rate cuts implemented late in 2025 and focus on slowing demand, given strong GDP growth and robust corporate profits. He pointed to nominal GDP growth above 6% in the second quarter and a deficit-to-GDP ratio over 6% as signs of an overheating economy.
He warned that leaving rates unchanged after recent data and in anticipation of upcoming inflation readings could damage the Fed’s credibility among market participants.
Despite acknowledging that the decision is finely balanced, Brusuelas argued that the current inflation landscape gives little room for policymakers to treat the shocks as temporary. The central bank’s next steps are expected to reflect whether officials view these pressures as fleeting or as evidence of entrenched inflation.
