U.S. Consumer Price Index (August 2025)

Inflationary pressures show further signs of heating up in August  

• The Consumer Price Index (CPI) rose 0.4% month-on-month (m/m) in August, a tick ahead of the consensus forecast in Bloomberg and up from the 0.2% m/m gain in July. On a twelve-month basis, CPI was up 2.9% (from 2.7% the month prior). 
  
  • Energy costs (+0.7% m/m) turned higher last month, while food prices (+0.5% m/m) also firmed due to higher grocery costs (+0.6% m/m). Price growth for 'food away from home' was up 0.3%m/m - unchanged from July. 
• Excluding food and energy, core inflation rose 0.3% m/m (0.35% m/m unrounded), largely matching last month's gain and meeting the consensus forecast. The twelve-month change held steady at 3.1%. 
• Price growth of services continued to come in on the hotter side, rising 0.35% m/m, following a similar gain of 0.36% m/m in July. Primary shelter costs rose at its fastest monthly clip in several months, while price growth of non-housing services (+0.4% m/m) remained firm for a second consecutive month.
  • Higher travel costs (+3.0% m/m) were a big driver of price growth in non-housing services, thanks to a sharp uptick in airfares (+5.9% m/m) and hotels (+2.3% m/m). 
• Tariff passthrough continued to materialize in core goods prices, which were up 0.3% m/m or its fastest monthly gain since January. Price gains were most notable in apparel (+0.5% m/m), appliances (+0.5% m/m), household furniture and bedding (+0.4% m/m) and new vehicle prices (+0.3% m/m). Used vehicle prices also rose 1.0% m/m, which could in part be driven by consumer switching to used models in an effort avoid paying tariff costs.

Key Implications

• Inflationary pressures continued to heat up in August, with broad strength in goods and services inflation. Goods prices are likely to continue to drift higher over the coming months as businesses increasingly pass-on more of the tariff costs. However, further upward pressure on services inflation looks limited against the backdrop of a cooling labor market which is likely to limit upward pressure on wage growth and keep a lid on discretionary services spending. 
• But nothing is a guarantee, and policymakers will need to balance the risks of reducing the policy rate by enough to breathe some life back into the labor market, but not by so much that they risk unnecessarily stoking inflation. We see the Fed delivering on three quarter-point cuts by year-end, with the first coming at next week's meeting. We've long held this view, and following this morning's release, Fed futures are pricing in a similar rate-cut path by year-end. 

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