August CPI Report: Inflation Remains Elevated, but a September Fed Cut Looks Likely

Key Takeaways

• Inflation remained sticky in August, with CPI inflation coming in at 2.9%.
• Goods prices increased for the month, which analysts say is evidence of the impact of President Donald Trump’s new tariffs.
• The Fed is widely expected to cut rates at its September meeting.

Inflation remained elevated in August 2025, according to the latest Consumer Price Index report.

Data released Thursday by the Bureau of Labor Statistics showed that certain goods prices, including household furnishings and cars, ticked higher—more evidence that President Donald Trump’s new tariffs are continuing to weigh on the economy. Some services prices, including airfares and shelter prices, also rose in August.

Overall, the CPI report showed that inflation rose at a 2.9% annual rate and a 0.4% monthly rate in August, slightly more than economists expected. Core CPI, which excludes volatile food and energy prices, rose 3.1% on an annual basis and 0.3% on a monthly basis, the same as in July.

The data comes ahead of the Federal Reserve’s September meeting, where central bank officials are widely expected to reduce interest rates against the backdrop of a rapidly cooling job market. Inflation remains above the Fed’s long-term target, but analysts say central bankers are now focused on the risks posed by a deteriorating labor market.

“The latest data does support the notion that inflation is reaccelerating, but at a gradual pace,” says Preston Caldwell, senior US economist at Morningstar. “It won’t stop the Fed from cutting next week.”

August CPI Report Key Stats

• CPI rose 0.4% for the month after rising 0.2% in July.
• Core CPI rose 0.3% after rising by the same amount in July.
• CPI increased 2.9% year over year after increasing 2.7% the prior month.
• Core CPI rose 3.1% from year-ago levels after rising by the same amount in July.
• Tariff Impacts Persist

Core Goods Prices Show Tariffs Impact

Overall, core goods prices rose 0.3% for the month of August, which, according to Caldwell, is a “clear sign” of the impact of tariffs. Excluding cars, prices for durable goods rose 0.5% for the month and have risen at an 8.5% annualized rate over the past three months. That is “much higher than normal,” Caldwell says, since goods prices typically decelerate or remain flat on a monthly basis.

Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth, points to new-car prices, which rose 0.3% in August. That’s another signal that higher import prices are being passed on to consumers, he says.

Pharmaceutical prices, on the other hand, fell 0.3% for the month. The sector is so far exempt from new tariffs.

Services Prices Spike

Shelter prices rose 0.4% in August, according to the BLS, and the category was the largest contributor to the increase in overall inflation. It was also the largest increase in that category, but Caldwell says the spike is likely an “aberration,” since more forward-looking rent data is not trending higher.

Airfares also spiked in the August CPI data, but Caldwell expects that effect to be more muted in the Personal Consumption Expenditures Price Index report that will be released later this month. The Fed uses PCE inflation as its preferred measure of price pressures.

How Much Will the Fed Cut Rates?

Even though inflation remains higher than the Fed’s target, analysts widely expect the central bank to cut rates at its September meeting.

“While the stability in the financial markets reduces pressure on the Fed to cut rates, the rapidly weakening employment picture and other less-than-stellar economic data all but guarantee a September rate cut,” Pappalardo says.

Bond futures traders are universally expecting the Fed to cut rates at its September meeting next week, according to data from the CME FedWatch Tool.

They see a roughly 91% chance of a 0.25 percentage point cut, which would bring the target federal-funds rate to a range between 4.00% and 4.25%. Traders see a 9% chance of a larger, 0.50-percentage-point cut, which would bring the target rate down to between 3.75% and 4.00%.