The Consumer Price Index for all items rose 0.4% month-over-month in August, up from a 0.1% monthly increase in July, according to U.S. Bureau of Labor Statistics data released on Friday. A 3.9% monthly jump in the gasoline index contributed over one-third of the all items increase, while the energy index overall rose 2.1% month-over-month. On a yearly basis, inflation was up 3.4% in August, the same as in July.
Core inflation, the all items less food and energy index, rose 0.3% in August after a 0.2% monthly increase in July. On a year-over-year basis, core inflation rose 2.4%, down from 2.5% in July. Indexes that contributed to the monthly core increase included communication (+2.3%), airline fares (+2.7%), education (+0.8%), and used cars and trucks (+0.4%). Medical care (-0.2%) and motor vehicle insurance (-0.8%) decreased. Sam Williamson, First American's senior economist, said the firmer monthly reading and persistent services inflation show that underlying price pressures remain stubborn.
Williamson said the firmer core reading puts another thumb on the scale toward a potential interest rate hike by the Federal Reserve at its meeting next week. With the labor market still on solid footing, policymakers have room to lean harder against inflation, which would likely keep borrowing costs elevated in the near term as markets price in a higher path for interest rates. For homebuyers, meaningful mortgage rate relief remains out of reach for now, even as rising incomes and cooling house prices help buyers slowly regain some purchasing power.
What remains unknown is whether the Federal Reserve will actually raise rates at its meeting next week, and how much weight it will place on the monthly core increase versus the slight year-over-year decline in core inflation. The dossier does not include the Fed's internal projections, voting intentions, or any subsequent market reaction, so the policy outcome and its effect on borrowing costs remain open questions.