The consumer price index excluding volatile food and energy prices rose 0.3% in August, edging up 0.1 percentage point from the prior month and exceeding forecasts, according to the Bureau of Labor Statistics. The reading increases the odds that the Federal Reserve will raise borrowing costs at its upcoming meeting, with traders in interest rate futures lifting the probability of a September 16 hike to 86.5% from 72.4% a day earlier, based on CME Group's FedWatch tool. The data matters because it signals that the disinflation process may be stalling at a time when policymakers have already spent more than five years contending with inflation above the Fed's 2% goal.
Several components within core CPI contributed to the acceleration. Airline fares increased 2.7% and communication costs rose 2.3% after a 0.6% gain in July, while shelter and transportation services advanced 0.3% and 0.5%, respectively. Headline CPI held steady on an annual basis at 3.4%, the same pace as in July. Energy prices increased 2.1% in August, with gasoline rising 3.9% and fuel oil surging 10.1%. The energy pressure has been building for weeks: Brent crude oil climbed 18% during the past month to $104.96 per barrel amid sporadic fighting between U.S. and Iranian forces.
The inflation signal extends beyond the consumer basket. Higher energy prices helped push the producer price index up 0.4% last month, indicating that the personal consumption expenditures price index—the Fed's preferred inflation gauge—may persist at a level unacceptable to policymakers. Recent strength in the job market also gives Fed officials room to focus on price stability, with U.S. employers adding 162,000 jobs last month and unemployment holding steady at 4.1%. EY Parthenon Chief Economist Gregory Daco said the CPI data indicates the disinflation process is at risk, forecasting that core CPI on an annual basis will end the year at 2.6% and that the Fed will likely raise the main interest rate by a quarter-point on Wednesday and by another quarter-point in December.
The policy backdrop includes new tariffs imposed by the Trump administration in recent weeks, with a focus on Canada, the second largest U.S. trade partner after Mexico. Three Fed regional bank presidents dissented in July from a Federal Open Market Committee decision to hold the main rate steady, calling for a quarter-point increase. Daco predicted that during the September 15-16 FOMC meeting, only one or two policymakers will probably dissent in favor of holding borrowing costs steady, and that Fed Chair Kevin Warsh will likely use the cover of the majority to lead from behind and also vote for a hike. Consumer sentiment is deteriorating alongside these pressures, with University of Michigan surveys showing year-ahead inflation expectations jumping from 4% in August to 4.6% this month, the highest reading since June, and long-run inflation expectations edging up to 3.4% after three straight months at 3.3%.
The evidence base for this analysis is limited to a single secondary source, CFO Dive, which summarizes Bureau of Labor Statistics data, CME Group futures pricing, and economist commentary. The article does not provide the full FOMC voting record, the precise composition of core CPI subcomponents beyond those cited, or the complete tariff schedule. The reported Brent crude price of $104.96 per barrel is presented without a specific date or corroborating source, and the link between U.S.-Iran fighting and the 18% monthly rise is asserted rather than quantified. What to watch next includes the September 16 FOMC decision, the December meeting outcome, and whether the personal consumption expenditures price index confirms the producer price signal of persistent inflation.