Inflation edges higher in August, but Fed still likely to trim rates

"Shelter costs, up 3.6% year over year, continued to cool but still accounted for the largest share of the overall monthly increase at 0.4%. The latest data likely sets up the Fed to move forward with a conservative 25-basis point cut at next week's meeting, while offering little in the way of justification for a more aggressive 50-basis point move."

"Bank of America analysts said the August CPI inflation came in a little hotter than the 0.3% they expected, but added it doesn't alter their base case of two 25-bps cuts by the Fed in September and December. If PCE inflation is in line with our projection, however, the risks of another cut in October would increase. Ultimately, we think the October decision will depend more on the labor data, they wrote in a report."

Core inflation excluding food and energy remained steady at 3.1% annually while food rose 0.5% and energy 0.7% monthly. Shelter costs, up 3.6% year over year, cooled but contributed the largest share of the monthly increase at 0.4%. The data increases the case for a conservative 25‑basis‑point Fed cut and provides little support for a 50‑basis‑point move. August CPI was slightly hotter than expected but still consistent with two 25‑bps cuts in September and December, while PCE outcomes and labor data could affect the odds of an October adjustment. Tariff-driven price effects and seasonal jobless‑claim distortions complicate interpretation.

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