US Core CPI Rises as Expected, Keeping Fed on Track for Rate Cut

Key Data Points

Core CPI (excluding food & energy) rose 0.3% month-over-month in August. 

Headline CPI (all items) rose 0.4% month‑over‑month.

On a year‑over‑year basis:

Headline inflation: 2.9%, the highest since January. Reuters

Core inflation: 3.1% annually. Reuters

Context & Drivers

Shelter costs were a major contributor to inflation in August. Business Insider

Other notable pressures: airfares, used car prices, apparel. Some of this is linked to tariff effects and supply constraints. Business Insider

Implications for the Federal Reserve

Despite inflation running hotter than some forecasts, the data is seen as consistent with expectations for a rate cutnext week. Reuters

The labor market shows signs of weakening (e.g. rising jobless claims, weaker job growth), which supports the Fed’s rationale for easing. Reuters

Markets broadly believe that a 25 basis point cut is likely. Additional cuts throughout the remainder of the year are also being priced in, though a hotter inflation print tempers expectations of bigger/faster cuts. Reuters

Risks / Uncertainties

Inflation still above the Fed’s usual 2% target (especially core). There is concern about “stickiness” in certain sectors (shelter, services). Financial Times

Tariff impacts may not yet be fully reflected in inflation data — there could be further upward pressure as businesses finish running through old inventories. Reuters+1

The Fed’s preferred inflation gauge is PCE (Personal Consumption Expenditures) inflation; how PCE moves will matter for policy decisions. Reuters+1

Overall Take

The August inflation data came in a little hotter than some expected — but not so much as to derail the consensus that the Fed is ready to begin easing. The indicators suggest the Fed has cover to cut rates, but inflation staying elevated could limit the speed or size of cuts.