Full Breakdown
August Inflation Data and the Federal Reserve’s Upcoming Decision
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Core Event: August CPI and Market Expectations
The Consumer Price Index for August is expected to show a 0.4 % rise from July and a 3.4 % increase year-over-year, with core inflation (excluding food and energy) projected to climb 0.2 % month-over-month. The report arrives as investors watch the Federal Reserve’s September policy meeting, where the Fed may decide whether to raise interest rates for the first time this year.
Background & Context
President Donald Trump’s economic policies have been linked by some commentators to “Trump-inflation,” keeping headline inflation above the Fed’s 2 % target. Earlier in the year, the CPI fell to 3.5 % in June and 3.4 % in July, while May’s headline rate was 4.2 %. Crude oil prices have surged, with U.S. crude breaking $100 per barrel and Brent exceeding $107, pushing the national average gasoline price to $4.27—up 44 % since the Iran-related conflict began in late February.
Data & Statistics
- August CPI: +0.4 % MoM, +3.4 % YoY (expected).
- Core CPI: +0.2 % MoM (expected).
- Producer Price Index: +0.4 % MoM, +5.4 % annual rate (latest release).
- Personal Consumption Expenditures (PCE) price index: 12-month inflation 3.7 % in June-July.
- Mortgage rates: 7.07 % (latest).
- 10-year Treasury yield: highest level since 2007.
Official Statements & Responses
Federal Reserve Governor Christopher Waller indicated that a hotter-than-expected CPI could prompt a rate hike, while also noting recent data suggest emerging disinflation. Fed Chairman Kevin Warsh described the labor market as “stable” but said price developments are “more concerning,” adding that current readings do not yet show a meaningful improvement in underlying trends. In his Jackson Hole speech, Warsh reaffirmed the Fed’s 2 % inflation goal measured by the PCE index and warned that confidence in progress must be “clear and at sufficient speed” before the Fed can deem its work complete.
Why It Matters
A rate increase would aim to curb inflation but could exacerbate the affordability challenges facing Americans, including high gasoline and mortgage costs. Citigroup economists labeled the August CPI “crucial” for the September Federal Open Market Committee (FOMC) meeting, while KPMG chief economist Diane Swonk cautioned that the recent PPI data may be outdated relative to the latest oil price surge. Bond markets have already priced in the possibility of a September hike, reflecting heightened expectations that the Fed will act to bring inflation back toward its long-term target.
