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.
Inflation is about the only thing the housing market has going for it.
there’s floor for prices
cost to rebuild, insurance, property taxes all require higher prices
we aren’t going back to cheap housing, inflation(devaluation fiat $dollar) will soon catch up and make housing cheap again
Look at this guy, he has seed corn money.
/s
There is a discrepancy between thee various opinions about the cause of inflation. Warsh’s uncertainty about the role of monetary policy and inflation will not be tested as he presides over a 25 bpt increase while inflation rages.
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.
Possibly price of gasoline/diesel is less a function of oil prices and more a function of crack spreads, currently 300% higher than normal……suggesting also that reason oil price so ‘low’ considering Hormuz, is that refiners lack capacity….
The 10-year Treasury market is NOT afraid of CPI inflation; it’s afraid of something else.
The 10 year inflation breakeven retreated today and is still in the same 2.2% to 2.5% range (since late 2022). (Breakeven is the 10 year Treasury yield minus the 10 year TIPS yield.)
However, the real yield on the 10-year TIPS has broken above 2.5%, for the first time since 2008.
This bond goes back to 2003 and the yield has only been above 2.5% on four previous occasions: June-July 2006, October 2006, June-July 2007, and October-November 2008 (peak of the GFC).
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.”
When a company is beyond repair the leaders don’t need to be competent. The difference here is the people who make money will be toast along with all of us when the dust settles.
There is no way back for the USA this time. And these leaders are part of that process. Iran and what is happening quickly is a part of it.
Nobody knows how it will unfold. But on that invisible hand, it’s the Dollar up against the very place where the gold coin came into existence.
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!
Just put $50 on “No 25 bps hike” only sitting at 22% odds currently though.
I’m with you that it seems like a good chance they won’t raise, or the real long shot that they actually go 50bps which is maybe the correct move.
I don’t think there is any question that the Federal Reserve Board will vote to increase the Fed Funds rate by 25 bpt to increase the rate to 3,75 pct while inflation protects the wealthy at the expense of the poor.
There is an algorithm developed during the previous inflation that calculates that a Fed Funds rate of 7 % is required to extinguish inflation.
The Taylor rule, the most famous and reliable of rules predicting the relationship between Fed funds rate and inflation, only says 4% if you use smoothing (which matches history best) or 5.25% if you don’t. Though if you want to cherry pick, there is exactly one of the 6 scenarios that says 6.5%, but this relies on some more hard to estimate parameters and is likely overkill.
I’m not going to eat a shoe or anything but any rate hike until after midterms seems massively unlikely. To pretend like every aspect of our political system is not out for their own interests is entirely naive, FOMC is no exception. I expect them to fully cashing as much as they can, recognizing the trajectory ahead doesn’t appear great.
Not disagreeing with you narrative necessarily but get some salt and pepper for that shoe because 87% chance of a rate hike is the pricing within a week of the meeting means rate hike is quite likely.
Market says raise and they will abide… Rate raise likely drops long term rates briefly versus a hold would likely apply more pressure to long duration yields. Go figure!
The system of extraction by institutions designed by men as the foundational structure becomes brittle….everything got gamed by the top 5 percent knowing the final outcome of their policies ..what a pisser….and by the way, I had to self learn everything about central banks, currency, etc as my pitiful 12 plus 4 years of school had me a functional idiot…
“no administration is ever interested in a more accurate CPI…”
And this is why inflation keeps raging: it’s easier for Washington to pretend it isn’t so bad with this chronically flawed data.
MW: Forget the Fed. The Bank of Japan could deliver next week’s market shock.
The kind of “market shock” I want to see is a 90% financial haircut for the billionaire pigmen. These pigs have been eating our seed corn.
I think we may be on the precipice of a financial asset bubble deflation.
In real or nominal terms? Could it lead to a crack up boom when confidence in the dollar get completely shot?
I agree. The sale of US treasury securities into a market in which the dollar has become worth less tends to invoke hysteria.
Hotter Inflation Adds Pressure for Fed to Hike Rates…
Will Warsh ‘Put Up or Shut Up?’
Treasury yields surge in danger zone…
Bab al-Mandeb Strait, lifeline for global economy, in jeopardy…
Most definitely shut up.
Or in this case, mumble and say “we’ll wait and see”
Given everything surrounding the guy, it’s not really a surprise.
He’s Harry Potter but his friends are addicted to low rates in this particular story.
The gooberment wants everyone in debt as far as they are. Leverage and re leverage – to the moon!! I’m not though – my money is making money while I sleep. I did just put a third lien on a commercial property for a client so they are re leveraging to the hilt! Sorry Mr. Banker man you’re in third position if it goes up in smoke or under the flood waters or bankrupt because no one can afford anything anymore – good luck with that. Who’s underwriting this crap?
Isn’t it the taxpayer and the savers who underwrite all this in the end? I mean in-between Somali Learing centers, and Mexican kids’ braces..
Not an economist, clearly.
The 10-year Treasury market is NOT afraid of CPI inflation; it’s afraid of something else.
The 10 year inflation breakeven retreated today and is still in the same 2.2% to 2.5% range (since late 2022). (Breakeven is the 10 year Treasury yield minus the 10 year TIPS yield.)
It’s the same story for the inflation breakevens across the yield curve. Inflation breakevens today range from 2.25% (longer maturities) to 2.5% (shorter maturities), but not > 2.5%.
However, the real yield on the 10-year TIPS has broken above 2.5%, for the first time since 2008.
This bond goes back to 2003 and the yield has only been above 2.5% on four previous occasions: June-July 2006, October 2006, June-July 2007, and October-November 2008 (peak of the GFC).
What has the Treasury market demanding higher real yields, but not pricing in higher inflation?
Fear + Higher Real Growth
Interesting question.
One answer I’ve seen is that treasuries are no longer being priced as a risk-free investment.
In the past treasuries were priced with no risk of default factored in. Now they are priced with a risk of default.
That would apply to TIPS too. E.g. if you buy a 30 year TIPS, then the odds of the US government defaulting are the same as if you bought a 30 year nominal treasury. So if default is the main risk, TIPS and treasuries would move more together.
After thinking about it over the weekend, I think the more likely scenario causing a rise in real yields is just a basic excess of demand vs. supply of credit. Currently there’s rising demand for loans – not just for government borrowing but also for AI and for other corporate needs. If not as many “need” to lend as “need” to borrow, real rates can go up.
Schiff thinks that the long term interest rate is likely going to go into the double digits
I think that anyone buying American debt better be prepared to take the Trump haircut.
Loss of the underlying prestige that we previously have enjoyed is upon us.
if an entity, as a borrower, has repeatedly successfully bullied lenders in the past, well, why not try again.
Because the victims of the bullying stop coming to the playground where the bully is.
See the US dollar’s share of foreign central bank reserves falling. See the rise of BRICSpay and Crypto and the increasing use of Euros and Chinese yuan to trade commodities. See the price of gold, which has risen as fast as the stock market over the past 25 years.
In other words, the world is steadily moving away from the US dollar as a reserve currency, because we are clowns.
If you take a 24 month moving average of long-term monetary flows, the volume and velocity of means-of-payment money, you’ll find it increasing clear up to December 2027. That’s one reason why there’s upward pressure on inflation and interest rates. Momentum is still accelerating.
Inflation? It was predictable…
And yet 18 years from the decisions made too implement QE a new, untested economic philosophy.
If the monetarist experiment somehow worked against even the loony Friedman’s disapproval it would serve as a testament to the dominance taught at Harvard
Initially QE was contractionary. It destroyed the nonbanks. We had negative CPI prints in both 2009 and 2010.
Link: “The 2006 Financial Services Regulatory Relief Act gives the Fed permission to pay interest on reserves. The IOR rate was always higher than “the general level of short-term interest rates” which is imposed in the Law. “A Legal Barrier to Higher Interest Rates,” The Wall Street Journal, Sept. 28, p. A13.
Nonsence. QE was 180 degrees from a contractionary policy from birth which was sold as, by covering the gambling losses of the Aristocracy, America would continue too be the land of opportunity.
Otherwise, our children would not ever be able too apply too Harvard or Princeton, where Bernanke came from.
The stock market bottomed in March 2009 when monetary flows, the volume and velocity of means-of-payment money supply finally turned the corner. I was using required reserves as a proxy. Reserves were driven by payments, total checkable deposits.
What changed in March 2009 was the Financial Accounting Standards Board throwing Rule 57 Mark to Market on Assets into the gutter as that is precisely what caused any and all of the perceived ‘problems’ back then.
Perhaps.
But I remember losing a lot of money betting against the balloon of over investment when credit is too lax.
Like Keynes and Newton, the duration of the status quo resulted in substantial financial loss.
Eventually the sure thing came too pass. Long after I was toast.
The pontificating political and bureaucratic scum will stand up in front of the cameras and loudly proclaim “nobody could have seen it coming” when, like the 2008 housing bubble collapse, it was obvious to even the most dull of individuals.
Those scum of course we elect to represent us
The potential collapse confronting us now makes the 2008 economic maelstrom seem like child’s play
The collapse behind the collapse is in our ability to discern good leaders.
How temporary is this inflation?
Not very
Should I go shopping before prices go up even more?
If you have empty basement/cellar or closet space and the things you want to shop for are shelf-stable, then the answer is probably “yes”.
Everything in life is pretty temporary, but this inflation may be just transitory…/s
Is the story here that we had an economic shock due to the pandemic, the government magically compensated, with the plan for higher-than-normal inflation to reduce the debt over ~10 years, minimizing the political fall-out? Correlation is not causation, but I see a huge spike in inflation at the same time that we were recovering economically from the pandemic, and a huge jump in government debt. What I did not hear clearly from the government is how the pandemic-related cost would be covered; nobody said “We will cover y’all now, since most of you have limited savings, but you will pay us back via inflation over the next 10 years.”
Am I getting this right?
Too many conspiracy theorists out there.
This is in fact close to what happened after the GFC in 2008. But it didn’t work: years of 0% interest rates failed to generate any inflation at all.
The pandemic was more a story of people freaking out about potential economic damage, opening the taps to try to prevent it, and then failing to turn them off early enough. After a decade of failing to increase inflation, that finally did, and everyone was a bit surprised. But they failed to heed the evidence that this time they actually got inflation, and let it get a bit out of control.
I think you’re getting it right. I also think Keynesian helicopter money was the wisest choice we could have made in those circumstances. We were back to full employment within 18 months of an economic crisis that had most small businesses teetering on the brink of closure, most large businesses contemplating large-scale layoffs, and most banks undergoing severe stress.
People forget, but entire factories, call centers, retail businesses, and restaurants were being shut down because COVID would rampage through workplaces and make everyone sick at the same time. Businesses work on the assumption that not everyone gets sick at the same time, but COVID was violating that assumption.
The unemployment rate hit 14.8% in April 2020, and turned back downward after the first stimulus package was passed. That package basically guaranteed that this was not going to become another Great Depression, and from there it was off to the races.
Was there a bill due in the end? Yes. The US dollar and other currencies that applied helicopter money lost purchasing power and experienced above-target inflation for a couple of years.
But if we’re employed, living in our own homes or apartments, having plenty of groceries and eating at restaurants, and watching our 401k’s balloon, perhaps we should look up from our $1,100 iPhone for a moment and think about how bad things could have been.
Before we pine for the good ole days of Herbert Hoover and Andrew Mellon, we should think about the generation of depression children whose growth was stunted by malnutrition, the foreclosed-upon families surviving cold winters in tar-paper shacks, the hobos and dust bowl migrants, the bread lines and shuttered businesses, the families who lost their wealth when most banks collapsed, or the prospect of putting cardboard inside of one’s shoe when the sole finally wore all the way through to your skin. The living memory of how bad it could get has passed away, and so now we use our expensive personal IT equipment to complain about prices while eating a hearty breakfast.
Why worry about inflation? Experts like Tom Lee and Lance Roberts say it’s not a problem. When oil goes back down, so will it. 2% is right around the corner. Especially if we all get $5000.
If we all get $5000, would that not cause more inflation??
More dollars chasing after more goods ….Supply and demand.
Is that not what happened when the government sent all the money to people during the Covid… and drove the price of goods up ?
If we all got 5000 and spent it, it would show up as a big increase in GDP while only adding 50 billion to interest expense.
1.3 trillion is only about 3.2% of outstanding debt and US GDP is 32 Trillion so a bit larger share of GDP.
This might mean that GDP continues to grow faster than Debt (as long as not traitors dares to save that 5000. Spending is patriotic) so everything would be fine or at least look fine.
I dont really believe this, but people with an incentive to believe it, might believe.
The first two lines are exactly the kind of bullshit braindead logic that has gotten us to the $40 trillion debt.
If I get a $5,000 check, which I won’t, here’s what I’ll spend it on:
-shares of a gold ETF
-Swiss frac futures
-Australian dollar futures
-shares of a commodity ETF
I hope this is sufficiently patriotic.
All that pandemic corporate welfare is really what drove asset and consumer prices up. The size of those free corporate handouts far, far exceeded the total size of the stimmy checks everyone blames for all the consumer price inflation.
Wait until I show you the value of the various tax cuts over the past 40 years.
Dr. William Barnett’s CFS Divisia M4, which is the broadest and most important measure of money, grew by 7.9% in July 2026 on a year-over-year basis versus 7.8% in June.
The FED likes it “running hot”.
Note: “Divisia aggregates are a class of monetary aggregates that use Divisia index methods to weight components of money supply according to their relative importance in providing liquidity services, rather than treating them as equal in value”
Inflating the debt away may be the Fed underlying goal as Besset moves more long term bond debt to short term bond debt.
While sitting at a cafe in, oh, let’s say 2008 probably, I overheard a couple discussing their money problems. The man was arguing that it wouldn’t matter if they maxed out their credit cards because bailouts would cause massive inflation that would inflate their debt away!
Every year or so I wonder how those two are doing.
Households inflate their debts away all the time, but it doesn’t work with high-interest-rate revolving credit card debt. It does work wonderfully with 30-year fixed-rate mortgages, and people do it all the time. Inflating debt away means that the income grows faster than the debt (in this case, the debt doesn’t grow at all, but the income grows). So at first, that mortgage payment is a stretch, but then 10 years later, when your income doubled due to inflation and a few raises, those payments are easy, and 20 years later when inflation quadrupled your income from 20 years ago, those payments are just a monthly squiggle in your bank account.
It even works when you buy a bigger house every 10 years and the mortgage payments go up, but you still inflate that fixed debt away as your income keeps growing due to inflation. If you’re on a hot career with big performance increases, plus lots of inflation, a 30-year mortgage payment becomes negligibly small after 15 years, and you pay off the mortgage so you don’t have to mess with it anymore.
This is the most fundamental part of consumer finance 101: the relationship between inflation, incomes, and long-term fixed debts.
Haha! I can tell you how they’re doing.
Thanks for the note Wolf great work
We live on borrowed time. Just wish I knew when it ends.
Perhaps just own anything but paper assets. Liquidity would be a problem.
Do not be a debit on anybody’s balance sheet. Harder done than said.
Regarding healthcare CPI, I wonder if Warsh has a panel studying that as he claims to be a reformer (or at least others say).
Warsh talked about using modern data collection methods and 2 billion prices or whatever. He’s on the right track with that, but it’s not going to happen because it’s not the Fed’s job to come up with a new inflation measure. The Fed uses the inflation measures by the BEA (PCE price index) and BLS (CPI).
Wolf, whats the story with the kooky medical services inflation rates? Im sure youve expounded on that before, can you link to that explanation.
Also thanks for pointing out the true source of the problem…
no administration is ever interested in a more accurate CPI).
I officially call the health insurance CPI “chickenshit.” I haven’t updated these things since it’s always the same and people don’t read it. But it has gotten even worse since then:
Here is the more detailed explanation from 2023:
https://wolfstreet.com/2023/11/14/the-collapse-of-the-health-insurance-cpi-how-it-became-chickenshit/
Here is a more updated summary .. scroll down in the article till you get the section heading “The chickenshit health insurance CPI.”
https://wolfstreet.com/2026/01/13/bad-joke-housing-cpis-absurd-health-insurance-cpi-still-marr-todays-cpi-data-repress-year-over-year-cpi-inflation/
Well, at least we can rest easy OpenAI won’t be IPOing this year due to “security” concerns. I’m sure not related to essentially having a commodity technology that has zero chance of generating a profit in any imaginable future. Definitely breathing easier with that news!
Regarding inflation and the average person/voter, many do not realize that even if inflation went to zero tomorrow morning, this does not mean that prices will revert to pre-inflationary times. It only means that prices have stopped going up.
Meant to add that the 10 year Treasury rate, less the most recent 1-year CPI inflation rate, is actually still quite low (<2% real) vs historically typical levels of 2.5-3.0% (1960s) or 3.0-5.0% (1990s).
Also, bond investors got totally ripped off from 2018-2024 as yields rose, and ought to be more risk-averse as a result. That recency-bias effect should drive a higher real yield even if inflation expectations stay anchored to 2.5%
On Friday, I went to the Costco gas station, and it was closed. They had sold all of the gas.
On Sunday, I went back and filled up. Prices had gone from $4.93? to $5.25/gallon.
The next inflation numbers are going to be UGLY.