WASHINGTON, September 11 — US consumer prices rose 0.4% in August on a seasonally adjusted basis, the Bureau of Labor Statistics reported Thursday, matching the prior month’s pace. The 12-month inflation rate eased to 2.9% from 3.1% in July. The core index, which strips out volatile food and energy prices, increased 0.3% for the month and 3.1% over the year, holding steady from July’s annual reading.
Follow the money and the headline number looks like progress. The catch is underneath it.
Shelter costs rose 0.4% and remained the largest contributor to the monthly increase. Over the year, the shelter index rose 4.0%, accounting for over half of the total 12-month increase in the core index. Services and shelter remain the sticky part of this story.
Food prices advanced 0.5% in August and 3.2% over the year. Energy rose 0.3% for the month but fell 0.6% over the year, with gasoline prices down 4.6%.
New vehicle prices increased 0.3%, used car prices edged up 0.2%, and airline fares — a drag in prior months — rose 0.3%.
The mechanics of the Fed’s next move
The data lands a week before the Federal Reserve’s policy meeting on September 16-17, where officials are widely expected to lower the federal funds rate from its current target range of 4.25% to 4.50%. That would be the first cut since December 2024. Markets reacted positively, with futures pointing to a higher open as investors bet on a quarter-point cut.
The dollar was little changed, Treasury yields edged higher, and the S&P 500 opened higher. Fed Chair Jerome Powell has signaled the central bank is prepared to act if the labor market weakens further.
The August jobs report showed the unemployment rate at 4.3% with payroll growth of 22,000, a sharp slowdown from earlier in the year. Inflation has cooled substantially from its June 2022 peak of 9.1% but remains above the Fed’s 2% target. Some Fed officials have expressed caution about cutting too quickly given the still-elevated inflation rate.
The decision will depend on the totality of the data, including the upcoming PCE report and any revisions to prior data.
What the report does not settle
On closer reading, the trend is gradual moderation, not victory. June’s CPI rose 0.3% with an annual rate of 2.7%; July brought a 0.4% monthly increase and a 3.1% annual rate. August held the monthly pace and trimmed the annual rate to 2.9%.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, is due later in September and could provide further guidance. The CPI is not just a Fed input.
It is used to adjust Social Security benefits, tax brackets, and other payments. The Social Security Administration has said the cost-of-living adjustment for 2026 will be based on third-quarter CPI-W data covering July, August, and September. The August CPI-W, a subset of the CPI-U, rose 0.4% in August and 2.8% over the year.
The final COLA announcement will come in October. The BLS will release the September CPI report on October 15.
The Fed’s decision is announced September 17.
