Core services CPI +4.0% annualized, Core CPI +3.5% annualized, all-items CPI +4.9% annualized in August from July.
By Wolf Richter for WOLF STREET.
The month-to-month all-items CPI bounced back, jumping by 0.40% in August seasonally adjusted (+4.9% annualized, blue line in the chart), after a low positive reading in July and the steep negative reading in June when energy prices had plunged.
Only part of it was driven by the jump in gasoline prices, which mostly occurred in late August and September, so some of it will show up in the September CPI. A big driver was the “core services” CPI, which jumped by 0.33% (+4.0% annualized). Core services account for nearly two-thirds of the all-items CPI and include housing, healthcare, insurance, etc.
On a year-over-year basis, the all-items CPI rose by 3.4% in August, roughly the same pace as in July. Since the beginning of 2020, it has surged by nearly 30%.
The “core” CPI, which excludes energy prices and food prices, jumped by 0.29% month-to-month (+3.5% annualized), pushed up by the core services CPI (+4.0% annualized) and held down by the core goods CPI (+1.3% annualized).
Year-over-year, it rose by 2.4% (red line).
The core CPI is dominated by the core services CPI, but also includes all goods except food and energy goods.
Inflation in services.
The core services CPI, which excludes energy services such as electricity and utility natural gas services, rose by 0.33% (+4.0% annualized) in August from July (blue in the chart below).
Year-over-year, it rose by 3.0%, roughly the same as in the prior month (red line). Since the beginning of 2020, the core services CPI has surged by over 30%.
The biggest components of core services:
- Rent of Primary Residence: +0.23% MoM (+2.8% annualized); +2.7% YoY
- Owner’s Equivalent of Rent (OER): +0.19% MoM (+2.3% annualized); +3.1% YoY
- Supercore services (core services without housing): +0.31% MoM (+3.7% annualized); +3.1% YoY
The two deeply flawed components in the CPI for services – OER and the entire medical care complex – cause the services CPI to be understated in relationship to actual services inflation. The Fed-favored PCE price index also uses them but with smaller weights and is somewhat less impacted by them.
OER attempts to measure inflation that homeowners face by looking at homeownership as a service of shelter. OER tracks what a large panel of homeowners think their home would rent for. It’s a stand-in for the actual costs that homeowners face, such as homeowner’s insurance, property taxes, HOA fees, repairs and maintenance, which are not included in CPI, but these costs have been surging. OER is a fundamentally flawed metric in the CPI and should be replaced by the actual costs that homeowners face.
The costs of medical care, which includes health insurance premiums, have been big household expenses with big price increases.
But the way the “health insurance” CPI is structured (-8.5% YoY 🤣) and the way the “medical drugs” CPI is structured (-2.7% YoY 🤣), medical care artificially reduces the services CPI.
These components are a scandal. They should have been replaced years ago with something that tracks actual price increases in those categories (I have for years screamed about them, but no administration is ever interested in a more accurate CPI).
The “core goods” CPI (all goods except food & energy) rose by 0.1% (+1.3% annualized) in August from July.
Year-over-year, it rose by 0.7%.
| Major core goods categories | MoM | YoY |
| Core goods overall | 0.1% | 0.7% |
| New vehicles | 0.3% | 0.6% |
| Used vehicles | 0.4% | -2.3% |
| Household furnishings (furniture, appliances, floor coverings, tools) | 0.0% | 0.6% |
| Apparel | 0.0% | 3.6% |
| Medical drugs | -0.4% | -2.7% |
| Information technology (computers, software, smartphones, etc.) | 0.1% | -4.3% |
| Recreation commodities (sporting goods, toys, TVs, musical instruments, anything related to pets, etc. | 0.0% | 3.1% |
This chart shows the price level of the core goods CPI, not the percentage change. Since January 2020, it has risen by 16%:
The energy CPI spiked by 2.1% month to month and by 16.3% year-over-year.
All crude-oil related fuels spiked. Gasoline, which accounts for over half of the Energy CPI, spiked by 3.9% month-to-month and by 27.4% year-over-year.
Electricity and natural gas (piped) eased month to month but rose by 3.8% and 4.4% year-over-year.
Since the beginning of 2020, the Energy CPI has surged by 46%. The chart shows the price level, not the percentage change:
The CPI for food at home was unchanged month-to-month and rose by 2.2% year-over-year, with some prices rising and others falling.
The biggest offenders in recent years were eggs, beef, and coffee. Egg prices have collapsed from their spike. And prices of beef and coffee, after a ridiculous multiyear spike, stalled or even backed off just a tad, but are still near all-time ridiculous.
Since the beginning of 2020, food prices have surged by 32%.
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The Fed is quick to lower, slow to raise.
I guess we will have to start eating our
seed corn.
SA suspended oil flow through its pipeline to the Red Sea tody since the Houthis sabotaged it and then followed that with kicking the Yemeni army away from the Red Sea coastline giving the Houthis carte blanche to shut down shipping through the Red Sea. Sept energy pricing will reflect $100/bbl energy. The train has left the station. Remains to be seen whether Kevin can round up the votes to raise rates. I personally think .25 is a swing and a miss.
I see Bessent is trying to outperform Trump when it comes to ridiculous statements(stretching the truth just a tad?):
In an interview Thursday evening with conservative strategist Steve Bannon on “War Room,” Treasury Secretary Scott Bessent disputed the talk that the buyback program failed.
“This whole nonsense today that our operation didn’t work — well, our operation didn’t work, because we only had $10 billion of offers for our buyback program,” Bessent said. “Normally, we get $20 billion, and we only buy the bonds back cheap. People seem to want to keep their long-term bonds, because we only had half as many offers. So, it’s a bunch of noise, and in my career, I made money ignoring the noise.”
I see nothing in this CPI report that will persuade 4 additional members of the Dove Nest (3 plus KevWar) to change their July votes against a rate increase.
Annual Core CPI at +2.4% is close enough to the 2% target to appease the Doves, and on the annual % change chart, the Doves can point to a falling trend from the recent peak in May 2026.
As for CPI, the BLS’s report states the following:
“The index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase.”
The PPI report said the same thing about diesel prices.
Remember, all the Doves need is an excuse not to raise rates, and here it is! Subtract “over one third” from the inflation numbers and they don’t look so bad. The Doves will say we have a transitory oil war problem, not a structural inflation problem. They will say the FFR is close to the neutral rate, if you ignore the petroleum problem.
The FedWatch website says there’s an 86.5% chance of a rate hike on Sept. 16. I’ll take the other side of that bet!