U.S. Inflation Hits 2.9% in August, Driven by Shelter and Energy Costs

CPI Rises 0.4% in August: Shelter, Food and Gasoline Drive Inflation

U.S. inflation showed renewed strength in August, with the Consumer Price Index (CPI) climbing 0.4% month-over-month, doubling July’s 0.2% increase. Year-over-year, CPI accelerated to 2.9%, up from 2.7% in July, according to data released by the Bureau of Labor Statistics. The increase was led by housing, food, and energy costs, raising questions for traders about the Federal Reserve’s policy path.

Shelter and Core CPI Hold Steady, Reinforcing Fed’s Higher-for-Longer Stance

Shelter continued to be the primary driver of inflation, up 0.4% for the month and 3.6% year-over-year. Core CPI—excluding food and energy—also rose 0.3% for the second consecutive month, maintaining a 3.1% annual pace. Notably, owners’ equivalent rent and primary rent rose 0.4% and 0.3%, respectively, underscoring persistent housing cost pressure.

Other contributors to core inflation included a 5.9% monthly surge in airline fares, a 1.0% gain in used car prices, and a 0.5% rise in apparel. In contrast, medical care dipped 0.2%, with declines in dental services and prescription drugs tempering broader service inflation.

Food Inflation Broadens; Groceries Lead the Gains

The food index rose 0.5% in August, with food-at-home jumping 0.6% and all six major grocery categories climbing. Fruits and vegetables soared 1.6%, driven by tomatoes (+4.5%) and apples (+3.5%). Meat, poultry, fish, and eggs rose 1.0%, led by beef prices, which surged 2.7%. Over the past 12 months, the food index increased 3.2%, outpacing headline inflation.

Gasoline Rebounds, Offsetting Energy Services Decline

Energy prices rose 0.7% in August following a 1.1% drop in July. Gasoline climbed 1.9% on a seasonally adjusted basis, reversing the previous month’s losses. However, natural gas fell 1.6%, and electricity edged up only 0.2%. Annual energy inflation remains muted at 0.2%, with gasoline still down 6.6% year-over-year.

Traders Eye September FOMC: Will Persistent Core CPI Trigger Hawkish Signals?

With core inflation remaining sticky at 3.1%, and shelter still exerting upward pressure, traders should expect the Fed to hold rates steady this month while retaining a hawkish tone. The data does little to support near-term rate cuts, especially with food and travel-related costs accelerating.

Market Forecast: Bullish Dollar, Cautious Equities, Yield Curve Pressure Likely

Given the stronger-than-expected inflation print, the U.S. dollar is likely to remain supported, especially against low-yielding currencies. Treasury yields may continue rising on repriced rate expectations, putting pressure on growth stocks and sectors sensitive to financing costs. Equity markets could face short-term volatility as Fed rate cut bets get further pushed out.