CPI report: Prices rose 3.4% in August, matching inflation expectations and raising Fed rate hike odds

CPI report: Prices rose 3.4% in August, matching inflation expectations and raising Fed rate hike odds

Claire Boston · Senior Reporter

Fri, September 11, 2026 at 5:01 PM GMT+3 3 min read

Consumer prices rose 3.4% in August, matching economists' estimates as the Fed weighs whether to hike benchmark interest rates or hold them steady.

Price growth accelerated 0.4% from July, also meeting expectations of economists surveyed by Bloomberg, while rising faster than July's 0.1% monthly gain.

Gas prices spiked 3.9% last month as the Iran War intensified, making them a leading driver of inflation last month. Americans now pay an average of $4.28 a gallon at the pump, according to GasBuddy.

"Core" inflation, which strips out volatile food and energy prices, was 2.4% on an annual basis, cooling from 2.5% in July. Month over month, it rose 0.3%, hotter than the expected 0.2% gain.

"Prices are still rising at an uncomfortably high rate," Justin Wolfers, a professor of public policy and economics at the University of Michigan, wrote in a post on X.

Read more: What is inflation, and how does it affect you?

Shelter costs jumped 0.3% from a month earlier, an acceleration from a 0.1% gain in July. Egg prices rose 2.9%, though they remain 23% cheaper than they were a year ago. The cost of airfare jumped 2.7% last month, and is up 23.4% since last year.

Computer prices are also soaring as artificial intelligence demand drives up the cost of chips. Prices for computers and related accessories jumped 3.8% from July and are 8.4% higher than a year ago. Cell phone services are also getting more expensive, increasing 5.9% last month.

Both core and headline inflation have come down this year after spiking in May at 2.9% and 4.2%, respectively, but remain well above the Fed's 2% target.

Fed officials have been divided over whether to raise benchmark interest rates or keep them steady to further assess if past rate hikes are helping to reduce inflation.

Fed Chairman Kevin Warsh emphasized in a speech last month that inflation is still too high, which many market-watchers interpreted as a sign that a September rate hike was on the table. But other Fed officials, including governor Christopher Waller and New York Fed president John Williams, have signaled they would likely vote to hold rates steady if the inflation rate continues to move lower.

"Although rate hikes next week still look more likely than not, today's report won't settle any debates in the Fed boardroom," Realtor.com senior economist Jake Krimmel said in a statement.

Hotter-than-expected core inflation, coupled with other recent data points, has Wall Street fairly convinced that the Fed will raise rates by 25 basis points next week. Oil prices surged past $100 a barrel, stoking new inflation fears, while new data showed that producer prices remained hot last month. And the US added 162,000 jobs in August, smashing expectations and easing some fears that another rate hike could weaken the labor market.

As of Friday morning, traders see a roughly 85% chance of the Fed hiking interest rates next month, according to CME FedWatch, up from around 70% before the inflation data was released.

Claire Boston is a Senior Reporter for Yahoo Finance covering housing, mortgages, and home insurance.

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