Core consumer prices rose 2.4 percent in the 12 months through August 2026, the smallest annual increase since March 2021, the Bureau of Labor Statistics reported at 8:30 a.m. Eastern on Friday, September 11. Headline inflation held at 3.4 percent over the same 12 months, unchanged from July, as a 27.4 percent annual jump in gasoline prices offset the cooling in everything else. The two figures came from the same release, USDL-26-1496, and they point in opposite directions.
Traders responded to the monthly detail rather than the annual one. Core prices rose 0.3 percent in August on a seasonally adjusted basis after a 0.2 percent gain in July, and the all items index rose 0.4 percent after a 0.1 percent July increase. Futures markets lifted the implied probability of a quarter point rate increase at the September 15 and 16 Federal Open Market Committee meeting above 65 percent, up from a 50 to 57 percent range before the print. The prime rate has sat at 6.75 percent for 275 days. This was the last inflation reading Committee members will see before they vote.
Key Takeaways
- Core CPI rose 2.4 percent over 12 months, the lowest reading since March 2021.
- Headline CPI held at 3.4 percent, with gasoline up 27.4 percent over the year.
- Monthly core accelerated to 0.3 percent from 0.2 percent in July.
- September rate hike odds moved above 65 percent from a 50 to 57 percent range.
- The prime rate stays at 6.75 percent until the Fed moves on September 16.
Table of Contents
What the August CPI Report Showed
The all items Consumer Price Index for All Urban Consumers rose 0.4 percent in August on a seasonally adjusted basis, four times the 0.1 percent pace recorded in July. BLS attributed more than one third of that monthly increase to gasoline alone, which rose 3.9 percent. The broader energy index gained 2.1 percent after falling 1.5 percent in July, and fuel oil jumped 10.1 percent in a single month. Food prices rose 0.1 percent, matching July, with grocery prices flat and restaurant prices up 0.3 percent.
Strip out food and energy and the picture changes. The core index rose 0.3 percent in August after 0.2 percent in July, and 2.4 percent over the year, down from 2.5 percent in the 12 months through July. Shelter, which carries the largest weight in the core basket, rose 0.3 percent after a 0.1 percent July gain and is up 3.0 percent over the year. Owners equivalent rent and rent each rose 0.2 percent. The unadjusted index level reached 334.980 on the 1982 to 1984 base. The CPI for Urban Wage Earners rose 3.5 percent over the year, and the chained index rose 3.3 percent.
Why Headline and Core Split Apart
The gap between the two headline numbers is almost entirely an energy story. Energy prices rose 16.3 percent over the 12 months through August, led by gasoline at 27.4 percent and fuel oil at 52.0 percent. Because energy carries a modest weight but swings violently, it can hold the all items index near 3.4 percent while the other 80 percent of the basket decelerates. Electricity actually fell 0.2 percent on the month and piped gas service fell 1.1 percent, so the pressure is concentrated in motor fuel rather than utility bills.
Inside the core basket, the August gain was narrow. Communication prices rose 2.3 percent after a 0.6 percent July increase, airline fares rose 2.7 percent and are up 23.4 percent over the year, and lodging away from home rose 2.4 percent after a 2.8 percent July decline. Several large components moved the other way. Medical care fell 0.2 percent after rising 0.4 percent in July, dental services fell 0.6 percent, and motor vehicle insurance fell 0.8 percent after a 0.3 percent July decline. Used cars and trucks rose 0.4 percent on the month but remain 2.3 percent cheaper than a year ago. The three month annualized pace of core inflation now sits at 1.97 percent, below the Federal Reserve 2 percent objective, while the six month pace is 2.57 percent.
How Markets Repriced the September Meeting
Rate markets read the monthly core figure, not the annual one. Implied odds of a quarter point increase at the September 15 and 16 meeting moved above 65 percent after the release, with some futures pricing near 70 percent. Before the print those odds ran between 50 and 57 percent, and they had been near 40 percent before Fed Chair Kevin Warsh told the Jackson Hole symposium in August that the 2 percent target is fixed and that inflation must fall at sufficient speed. The September gathering is a two day meeting that carries a fresh Summary of Economic Projections, so any move arrives alongside an updated dot plot.
Treasury markets flattened on the news. The spread between 10 year and 2 year yields narrowed to 0.33 percentage points on September 11 from 0.39 the previous session, a 6 basis point move that reflects front end yields rising faster than long ones. Inflation compensation fell at the same time. The 10 year breakeven rate slipped to 2.36 percent from 2.40 percent, and the 5 year breakeven fell to 2.40 percent from 2.46 percent. Longer yields were already elevated going in. The 30 year Treasury closed September 10 at 5.37 percent, its highest since July 2004, and the 10 year finished at 4.95 percent. The effective federal funds rate held at 3.63 percent. Total public debt outstanding stood at $40.05 trillion on September 10.
What It Means for Your Borrowing Costs
The prime rate is the number that translates a Fed decision into a consumer bill. It sits 3 percentage points above the top of the federal funds target range and has held at 6.75 percent since December 11, 2025, a stretch of 275 days. If the Committee raises rates by a quarter point on September 16, the prime rate moves to 7.00 percent, usually within one business day. Variable rate products reprice first. Credit card APRs, home equity lines of credit and many personal loans with floating rates follow prime directly, so a quarter point increase reaches those balances inside one or two statement cycles.
Fixed rate products track the bond market rather than the Fed directly. The average 30 year mortgage rate reached 6.76 percent in the week ended September 10, up from 6.71 percent the prior week, tracking the move in long Treasury yields rather than any policy change. Savers see the other side of the same trade. Deposit pricing on certificates of deposit and high yield savings accounts tends to firm when a hike looks likely, though banks pass through increases more slowly than they pass through cuts. Anyone carrying a variable balance has three days before the Committee votes.
Pro Tip
If you carry a credit card or home equity line balance, check whether your issuer quotes the rate as prime plus a margin. That structure means a quarter point Fed increase on September 16 lands on your balance automatically, with no notice required. Moving a balance to a fixed rate personal loan before the meeting locks your payment regardless of what the Committee decides. Compare the origination fee against the interest you would save.
Frequently Asked Questions
What did the August 2026 core CPI report show?
Core CPI, which excludes food and energy, rose 2.4 percent over the 12 months through August 2026, the smallest annual increase since March 2021. On a monthly basis core prices rose 0.3 percent, up from 0.2 percent in July. Headline inflation held at 3.4 percent over the year.
What did Kevin Warsh say about inflation?
At the Jackson Hole symposium in August 2026, Fed Chair Kevin Warsh described the 2 percent inflation target as fixed and said inflation must fall at sufficient speed. Markets treated those remarks as a signal that the Committee was prepared to tighten, and implied odds of a September increase rose from roughly 40 percent to the 50 to 57 percent range in the weeks that followed.
Will the Fed hike rates in 2026?
Futures markets place the probability of a quarter point increase at the September 15 and 16 meeting above 65 percent following the August CPI release. Two further meetings remain this year, on October 27 and 28 and on December 8 and 9. The Federal Reserve has not committed to any path, and the September meeting includes a fresh Summary of Economic Projections that will show where policymakers expect rates to end the year.
What are the chances of a Fed rate hike this month?
Implied probability moved above 65 percent after the August CPI print on September 11, with some futures contracts pricing close to 70 percent. That is up from a 50 to 57 percent range immediately before the release. These are market prices rather than forecasts, and they can shift sharply on a single data point or a speech, as the move from 40 percent in August demonstrates.
What happens to the prime rate if the Fed raises rates on September 16?
The prime rate would rise from 6.75 percent to 7.00 percent, typically within one business day of the announcement. Prime has held at 6.75 percent since December 11, 2025. Because prime sits 3 percentage points above the top of the federal funds target range, it moves in lockstep with the Fed and requires no separate decision by individual banks.
Should I lock a rate before the September FOMC meeting?
It depends on which product you hold. Variable rate credit cards and home equity lines reprice automatically after a Fed move, so converting to a fixed rate before September 16 removes that risk. Mortgage rates track Treasury yields rather than the Fed directly, and the 30 year average already reached 6.76 percent in the week ended September 10, so a lock there is a bet on bond markets rather than on the Committee.
Watching the Next Three Days
The Committee convenes on September 15 and announces on September 16 at 2 p.m. Eastern, alongside a new dot plot. September CPI arrives on Wednesday, October 14, well after the decision. Between now and then, the numbers worth tracking are the Treasury yield curve, the running inflation tracker, and the path laid out in the 2026 rate forecast. A 2.4 percent core reading argues for patience. A 0.3 percent monthly core argues for action.
References
- U.S. Bureau of Labor Statistics, Consumer Price Index Summary, August 2026 (USDL-26-1496). https://www.bls.gov/news.release/cpi.nr0.htm
- BLS, Consumer Price Index News Release, full tables, August 2026. https://www.bls.gov/news.release/cpi.htm
- FRED, CPILFENS, core CPI not seasonally adjusted. https://fred.stlouisfed.org/series/CPILFENS
- FRED, CPIAUCNS, all items CPI not seasonally adjusted. https://fred.stlouisfed.org/series/CPIAUCNS
- FRED, CPILFESL, core CPI seasonally adjusted. https://fred.stlouisfed.org/series/CPILFESL
- FRED, DPRIME, bank prime loan rate. https://fred.stlouisfed.org/series/DPRIME
- FRED, T10Y2Y, 10-year minus 2-year Treasury spread. https://fred.stlouisfed.org/series/T10Y2Y
- FRED, T10YIE, 10-year breakeven inflation rate. https://fred.stlouisfed.org/series/T10YIE
- FRED, MORTGAGE30US, 30-year fixed mortgage average. https://fred.stlouisfed.org/series/MORTGAGE30US
- Federal Reserve Board, FOMC Meeting Calendars. https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
- Bureau of the Fiscal Service, Debt to the Penny. https://fiscaldata.treasury.gov/datasets/debt-to-the-penny/debt-to-the-penny
