Consumer prices rose 0.1 percent in July and the core index that strips out food and energy rose 0.2 percent, the Bureau of Labor Statistics reported Wednesday, August 12. Measured over 12 months, headline inflation eased to 3.4 percent from 3.5 percent in June, while core inflation slowed to 2.5 percent from 2.6 percent, its softest annual reading of the past year. The release, numbered USDL-26-1378, landed at 8:30 a.m. Eastern, the last full inflation report before the Federal Open Market Committee meets on September 15 and 16. Shelter did most of the work on the headline figure, rising 0.1 percent and accounting for roughly two-thirds of the monthly all items increase. Energy fell 1.5 percent for a second straight monthly decline, with gasoline down 2.9 percent. Treasury yields eased in response. The two-year note closed at 4.20 percent and the 10-year at 4.68 percent, each two basis points below Tuesday. The prime rate did not move. It holds at 6.75 percent, three points above the top of the Fed’s 3.50 to 3.75 percent target range, and stays there until the Committee moves. For households carrying balances, the report matters less as a bill than as a signal about where borrowing costs go next.
- Headline CPI rose 0.1 percent in July and 3.4 percent over 12 months, down from 3.5 percent in June.
- Core CPI rose 0.2 percent and eased to 2.5 percent annually, the softest 12-month reading of the past year.
- Shelter rose 0.1 percent and supplied about two-thirds of the monthly increase in the all items index.
- Energy fell 1.5 percent, yet energy costs remain 14.7 percent higher than a year ago.
- The prime rate holds at 6.75 percent. The Fed next decides September 16.
What the July Report Showed
The all items index for all urban consumers rose 0.1 percent on a seasonally adjusted basis in July after falling 0.4 percent in June, which had been the first monthly decline since 2020. Before seasonal adjustment the index was unchanged, at a level of 333.918. The 12-month rate fell to 3.4 percent from 3.5 percent, extending a retreat from the 4.2 percent peak recorded in May. The index for all items less food and energy rose 0.2 percent after holding flat in June, and its 12-month rate slipped to 2.5 percent from 2.6 percent, matching the January and February readings as the lowest of the past year. The wage earners index also rose 3.4 percent over the year, and the chained index rose 3.3 percent.
Two forces pulled in opposite directions. Shelter, which carries the largest single weight in the index, rose 0.1 percent for a second consecutive month and supplied roughly two-thirds of the monthly all items gain. Owners’ equivalent rent and rent each rose 0.3 percent, while lodging away from home fell 2.8 percent. Energy moved the other way, declining 1.5 percent after a 5.7 percent drop in June. Gasoline fell 2.9 percent on a seasonally adjusted basis and 2.1 percent before adjustment, while natural gas rose 0.7 percent and electricity rose 0.1 percent. The annual comparison still reads badly. Energy costs sit 14.7 percent above July 2025 and gasoline is up 24.6 percent, the residue of a spring run-up in crude.
What It Means for the September Fed Decision
The Committee held its target range at 3.50 to 3.75 percent on July 29 and next meets on September 15 and 16, a session that carries a Summary of Economic Projections. Two data streams now sit on either side of that decision. Inflation is cooling. Core has fallen from 2.8 percent in May to 2.5 percent in July, and the headline rate has come down eight-tenths of a point from its May peak. The labor market is cooling faster. Nonfarm payrolls fell by 23,000 in July after adding 20,000 in June and 63,000 in May, and the unemployment rate stood at 4.1 percent. A Committee weighing a hike against inflation drifting toward target and a jobs count that has turned negative faces a narrower case than it did in the spring. Our Fed meeting schedule lists every remaining decision date.
Wages complicate the picture. Average hourly earnings rose 3.15 percent over the year in July, below the 3.4 percent pace of consumer prices, so the average worker lost ground in real terms for a fourth consecutive month. That gap argues against a wage driven price spiral, which removes one standard reason to tighten. Bond markets read the report the same way. The two-year Treasury yield, the maturity most sensitive to policy expectations, fell to 4.20 percent from 4.22 percent, and the 10-year fell to 4.68 percent from 4.70 percent. Treasury sold $42 billion of 10-year notes the same afternoon at a high yield of 4.683 percent with a bid-to-cover ratio of 2.53. Minutes from the July meeting arrive around August 19, and one more jobs report plus one more inflation print land before the Committee votes.
Where Prices Rose and Where They Fell
Grocery bills gave households the clearest relief. The food at home index fell 0.1 percent in July, and three of the six major grocery store groups declined. Meats, poultry, fish and eggs fell 0.7 percent as pork dropped 1.5 percent. Fruits and vegetables slipped 0.1 percent, helped by a 16.4 percent collapse in lettuce prices. Dairy and related products fell 0.1 percent. Nonalcoholic beverages ran the other way, rising 0.9 percent, and cereals and bakery products rose 0.2 percent. Restaurants kept climbing. Food away from home rose 0.3 percent. Over 12 months, food at home is up 2.7 percent and food away from home is up 3.4 percent.
Services told a harder story. Airline fares jumped 2.2 percent in July after a 0.2 percent gain in June and now sit 25.5 percent above a year ago, the largest annual increase among the major categories BLS singles out. Medical care rose 0.4 percent as hospital services gained 0.5 percent, while prescription drugs fell 0.8 percent. Communication rose 0.6 percent, education 0.5 percent and recreation 0.2 percent. Used cars and trucks rose 0.4 percent for the month yet remain 1.9 percent cheaper than a year ago. Motor vehicle insurance, a persistent driver of core inflation through 2025, fell 0.3 percent after a 2.0 percent drop in June. Shelter, the category that decides whether core keeps falling, is up 3.2 percent over 12 months.
What This Means for Your Money
None of this changes what you owe this month. The prime rate is 6.75 percent and it stays 6.75 percent until the Committee moves its target range, because large commercial banks set prime at three percentage points above the top of that range. Variable products keyed to prime, including most credit cards and home equity lines, carry the same margin they carried on July 30. Our page on how Fed decisions reach your loans walks through that transmission. What a cooler print changes is the probability around the next move, and that shows up first in fixed-rate products priced off Treasury yields. Mortgage rates averaged 6.69 percent on the 30-year fixed in the week ending August 6, and mortgage pricing tracks the 10-year Treasury, which closed at 4.68 percent on Wednesday.
Savers face the mirror image of that trade. Certificates of deposit and high-yield savings accounts hold their posted rates while the curve stays elevated, and a curve that has stopped rising is a curve that can start falling. Locking a term costs nothing if rates stay flat and pays if they slip. Borrowers shopping a fixed-rate personal loan face the reverse arithmetic, because today’s quote reflects a 10-year yield close to its 2026 high.
Measure any variable-rate offer against the 6.75 percent prime rate before you sign. A card quoted at prime plus 14 points charges 20.75 percent today, and that number moves the day the Fed moves. A fixed-rate personal loan quoted at 11 percent does not. Ask the lender to state the margin over prime in writing, not just the current APR. The margin is the part you negotiate and keep.
Frequently Asked Questions
What did the July 2026 CPI report show?
Consumer prices rose 0.1 percent in July 2026 and 3.4 percent over 12 months, down from 3.5 percent in June. Core prices, excluding food and energy, rose 0.2 percent for the month and 2.5 percent over the year. Shelter drove roughly two-thirds of the monthly increase while energy fell 1.5 percent.
Is the Fed likely to lower interest rates in September?
The Committee has not signaled a cut. It held the federal funds target range at 3.50 to 3.75 percent on July 29 and its next decision comes on September 16, accompanied by a Summary of Economic Projections. July inflation cooled and July payrolls fell by 23,000, a combination that weakens the case for another hike more clearly than it builds a case for a cut. The August Consumer Price Index and one more jobs report arrive before the vote.
What are the odds of a Fed rate hike in September?
No official probability exists. The Federal Reserve publishes no forecast of its own decision, and market-implied odds shift daily with each data release. What is verifiable is the direction of the inputs. Core inflation has fallen for two consecutive months to 2.5 percent, payrolls contracted in July, and real wages are negative. Three officials dissented in favor of a hike at the July meeting, so the hawkish argument has not disappeared, but the July data cut against it.
Will we ever see a 3% mortgage rate again?
Not on the current path. The 30-year fixed averaged 6.69 percent in the week ending August 6, and that pricing follows the 10-year Treasury yield, which closed at 4.68 percent on August 12. Mortgages typically run about 1.5 to 2 percentage points above the 10-year. Reaching 3 percent would require the 10-year to fall toward 1 percent, a level last sustained when the Fed was buying mortgage bonds and its target range sat near zero. Nothing in the July data points that way.
How does cooling inflation affect my credit card APR?
Not directly and not immediately. Almost every variable-rate credit card sets its APR as the prime rate plus a fixed margin, and prime moves only when the Federal Open Market Committee changes its target range. Prime has been 6.75 percent since the Committee last moved, so a card priced at prime plus 14 points still charges 20.75 percent regardless of what the July report showed. Cooling inflation reaches your card only through the chain from inflation to the Fed decision to prime.
When is the next CPI report released?
The Consumer Price Index for August 2026 is scheduled for release on Friday, September 11, 2026 at 8:30 a.m. Eastern, according to the Bureau of Labor Statistics. That is four days before the Federal Open Market Committee convenes on September 15, which makes it the final inflation reading the Committee sees before it votes. Minutes from the July 28 and 29 meeting are due around August 19, and the August employment report lands in early September.
Watching the September 11 Print Before the Fed Votes
July closed the summer inflation ledger with core at 2.5 percent and headline at 3.4 percent, both lower than a month ago and still above the Fed’s 2 percent objective. The August reading on September 11 gets the last word before the September 16 decision. Track the monthly series on our inflation tracker, borrowing costs on our prime rate page, and where the range may sit by December on our Fed rate forecast.
References
- U.S. Bureau of Labor Statistics, Consumer Price Index Summary, July 2026, USDL-26-1378.
- Federal Reserve, FOMC statement, July 29, 2026.
- Federal Reserve, FOMC Meeting Calendars, 2026 dates.
- U.S. Treasury, Daily Treasury Par Yield Curve Rates, August 2026.
- FRED, Core CPI, series CPILFESL.
- FRED, Bank Prime Loan Rate, series DPRIME.
- FRED, Total Nonfarm Payrolls, series PAYEMS.
- FRED, Average Hourly Earnings, series CES0500000003.
- FRED, 30-Year Fixed Rate Mortgage Average.
- U.S. Treasury Fiscal Data, Treasury Securities Auctions Data, CUSIP 91282CRF0.
