August CPI Runs Hotter as Shelter and Energy Drive Inflation Higher

The August CPI report showed inflation running slightly hotter than expected, with prices rising 0.4% on the month and 2.9% year over year. Energy prices led the charge, climbing 0.7%, with gasoline nearly 2%. Shelter costs made up more than half of the overall increase, with Owners’ Equivalent Rent—an often-criticized measure—up 0.4% and lodging away from home up 2.2%.

Airline fares surged nearly 6% and used cars rose 1%, adding incremental pressure to headline inflation. Core CPI, which excludes food and energy, rose 0.3% for the month and held steady at 3.1% annually. Without volatile components like shelter, airline fares, and used cars, the underlying core rose a modest 0.06%.

Despite this, inflation trends are moving in the wrong direction. The three-month annualized run rate for core inflation jumped to 3.6% from 2.7%, while headline accelerated to 3.5% from 2.3%. The data underscores the challenge of parsing temporary tariff effects from entrenched inflation, leaving markets watchful of the Fed’s next move.