Consumer prices rose 0.4% in August and stand 3.4% higher than a year ago, according to data released Friday by the Bureau of Labor Statistics—but it was the stickier core inflation number that caught the Federal Reserve’s attention just days before its September policy meeting. Core inflation, which strips out volatile food and energy costs, accelerated 0.3% for the month, a tenth of a percentage point above economist forecasts, while the annual core rate held at 2.4%.
The report immediately shifted market expectations: traders now price in better than even odds that the Fed will raise its benchmark interest rate by a quarter point when it meets September 15-16, rather than hold steady or cut. For home buyers and anyone carrying adjustable-rate debt, that means mortgage rates—which have already climbed to a one-year high near 6.8%—are unlikely to fall anytime soon, and could tick higher if the Fed follows through.
Gasoline was the headline driver, surging 3.9% in August alone and accounting for more than a third of the month’s overall inflation increase. But the detail that matters most for housing affordability is shelter: after two months of modest 0.1% gains, shelter costs jumped 0.3% in August, signaling that the largest single component of household budgets is not cooling as quickly as hoped.
The numbers
What the August CPI report shows
Headline inflation matched expectations, but core prices and shelter ran hotter than forecast
The Consumer Price Index for All Urban Consumers increased 0.4% on a seasonally adjusted basis in August after rising 0.1% in July, and over the last 12 months the all-items index increased 3.4% before seasonal adjustment, the Bureau of Labor Statistics reported. Both the monthly and annual headline figures were in line with the Dow Jones consensus.
Core CPI accelerated 0.3% for the month, with the annual inflation rate at 2.4%. The core monthly gain was 0.1 percentage point higher than forecast, a detail that matters because the Federal Reserve watches core inflation closely to gauge underlying price pressure without the noise of energy swings.
The index for gasoline rose 3.9% in August, accounting for over one third of the monthly all items increase. Gasoline prices were 27.4% higher than a year earlier, up from a 24.6% annual increase in July. Energy’s resurgence—after falling in July—drove much of August’s headline number, but it also raised concerns that higher fuel costs could spill over into other goods and services.
Shelter costs climbed 0.3% in August, after moderating over the prior two months. Over the past year, shelter prices rose 3.0%, down from 3.2% in July. While the annual pace is decelerating, the monthly acceleration is unwelcome news for renters, buyers, and the Fed. Shelter carries roughly 35% weight in the overall CPI basket, so any uptick in housing costs has outsized influence on the inflation picture.
Transportation services saw a 0.5% increase. Airline fares surged 2.7% in August following a 2.2% increase in July and were 23.4% higher year over year. Used cars and trucks rose 0.4%, new vehicle prices climbed 0.3%, and food away from home increased 0.3%—all contributing to what economists described as broad-based price gains.
Key figures from the August CPI
Headline CPI: +0.4% monthly, +3.4% annually
Core CPI: +0.3% monthly (above the +0.2% forecast), +2.4% annually
Gasoline: +3.9% monthly, +27.4% annually
Shelter: +0.3% monthly, +3.0% annually
Transportation services: +0.5% monthly
Airline fares: +2.7% monthly, +23.4% annually
Fed reaction
Markets now expect a rate hike, not a cut
Traders reversed course after the report, pricing in better than 50% odds of a quarter-point increase
Traders responded to the report by increasing odds for a Fed rate hike next week. Traders had priced in a 69% chance of a Fed rate hike next week in some measures immediately following the release, though CME’s FedWatch tool put the odds of a 25-basis-point rate hike at the Federal Reserve’s September 16 meeting at nearly 56% as of Friday afternoon.
The September 2026 FOMC meeting is held September 15-16, with the Federal Reserve announcing its interest rate decision on Wednesday, September 16 at 2:00 PM Eastern Time, along with the Summary of Economic Projections and the dot plot. The fed funds rate is currently pegged in a range of 3.5%-3.75%, where it has been for all of 2026. A quarter-point hike would lift the target range to 3.75%-4.00%.
“Chair Warsh and others signaled that interest rates can remain on hold only if disinflation continues and today’s August report did not deliver that,” said Kathy Bostjancic, chief economist at Nationwide. Nationwide now expects a quarter-point hike next week. Other economists pointed to modest goods inflation, continued shelter disinflation, but strong services ex-shelter inflation as evidence that underlying price pressures remain sticky.
The CPI release was the last major inflation indicator the Fed will see before its meeting. Federal Reserve Chair Kevin Warsh had signaled at the Jackson Hole symposium in late August that the central bank must be confident inflation is moving toward its 2% target “clearly and at sufficient speed.” The August report, with its hotter-than-expected core reading and reacceleration in shelter costs, did not provide that confidence.
What it means
Mortgage rates are climbing, not falling
Home buyers face a double squeeze: rates near 7% and persistent home price growth
The 30-year fixed-rate mortgage averaged 6.76% as of September 10, up from 6.71% the prior week, according to Freddie Mac’s Primary Mortgage Market Survey. Other lenders reported rates as high as 6.82% by Thursday. The 30-year fixed is at a one-year high, and markets are now pricing roughly 50%-60% odds of a Fed hike September 16—not a cut.
If the Fed raises rates next week, mortgage rates will almost certainly move higher in response, potentially pushing the 30-year average toward or above 7%. Even if the Fed holds steady, rates are unlikely to fall meaningfully in the near term. Mortgage rates will likely rise in September, despite having held steady throughout August, according to LendingTree’s forecast. Fannie Mae projects the 30-year average will climb to 6.8% over the rest of the year.
For home buyers, this is a painful reversal. Many had hoped that cooling inflation would prompt the Fed to begin cutting rates this fall, which would have pulled mortgage rates lower and improved affordability. Instead, inflation’s stickiness—especially in shelter and services—means borrowing costs will stay elevated for months longer. A family earning the national median income of $106,800 needed 34% of its income to cover the mortgage payment on a median-priced new home in the second quarter, according to the National Association of Home Builders, well above the traditional 30% affordability threshold.
The shelter component of the CPI—which includes apartment rents, owners’ equivalent rent, and lodging costs—rose 3.0% year-over-year in August. That’s still well below the 8% annual pace seen in early 2023, but the monthly reacceleration to 0.3% suggests housing costs are not falling as quickly as the Fed would like. For renters, that means continued pressure on lease renewals. For buyers, it means home prices are unlikely to drop, even as higher mortgage rates push monthly payments higher.
There is a sliver of good news: inventory has improved in many markets as peak homebuying season winds down, giving buyers more negotiating power. And if you’re a first-time buyer or have limited cash, assistance programs and low- and no-down-payment loan options can help offset some of the affordability hit. But the fundamental math remains tough: higher rates and sticky home prices mean monthly payments are still near record highs relative to income.
What higher rates cost you
On a $400,000 loan (the approximate amount needed to buy a median-priced U.S. home with 10% down), the difference between a 6.5% rate and a 7.0% rate is roughly $130 per month, or $1,560 per year. Over 30 years, that half-point costs you nearly $47,000 in additional interest. If the Fed raises rates next week and mortgages climb to 7% or higher, that’s the affordability penalty buyers will face.
Your move
What to do if you’re buying or refinancing
Don’t wait for perfect conditions—rates may not fall for months
If you’re in the market to buy, the conventional wisdom of “wait for lower rates” is looking less realistic. Rates have moved in the wrong direction over the past month, and a Fed hike next week would push them higher still. Waiting could mean paying even more, especially if home prices continue to rise in your market.
Instead, focus on what you can control. Shop multiple lenders—mortgage rates can vary by a quarter point or more between lenders for the same borrower. Lock your rate as soon as you have a signed purchase agreement, because rates are more likely to rise than fall in the next 30-60 days. And if you’re stretching to afford a home at today’s rates, build in a plan to refinance in 2027 or 2028 when rates are more likely to come down.
If you’re refinancing, the math is straightforward: unless you’re currently paying 7.5% or higher, a refi at 6.8% probably won’t save you enough to justify the closing costs. Wait until rates drop at least three-quarters of a point below your current rate before pulling the trigger.
For buyers who are priced out at current rates, explore assistance. Many states offer down payment assistance, closing cost grants, or below-market interest rates for first-time and low-to-moderate income buyers. FHA, VA, and USDA loans all allow lower down payments and more flexible credit requirements than conventional loans, which can make the difference between qualifying and not.
Finally, keep perspective. Yes, 6.8% feels high compared to the 3% rates of 2021, but it’s in line with the long-term historical average. And while affordability is genuinely challenging right now, the alternative—waiting indefinitely for rates to fall—carries its own risk. Home prices are unlikely to drop, and if you wait six months and rates are still 6.8% (or higher), you’ll have spent six more months paying rent with nothing to show for it.
Quick answers
August inflation: common questions
Will the Fed raise rates at the September meeting?
Markets are pricing in better than 50% odds of a quarter-point hike after the August CPI report showed core inflation running hotter than expected. The Fed meets September 15-16 and will announce its decision at 2:00 PM ET on Wednesday, September 16. If inflation had cooled more convincingly, the Fed might have held steady or even begun cutting rates—but the 0.3% monthly core increase and reacceleration in shelter costs make a hike more likely than not.
What does this mean for mortgage rates?
Mortgage rates have already climbed to a one-year high near 6.8%, and they’re likely to move higher if the Fed raises rates next week. Even if the Fed holds steady, rates are unlikely to fall in the near term because inflation remains above the Fed’s 2% target. Most forecasters expect rates to stay in the 6.5%-7.0% range through the end of 2026, with meaningful declines unlikely before 2027.
Why did shelter costs jump in August?
Shelter costs rose 0.3% in August after two months of modest 0.1% gains. The reacceleration suggests that housing costs—which include apartment rents, owners’ equivalent rent, and lodging—are not cooling as quickly as hoped. Shelter carries roughly 35% weight in the CPI, so even small monthly increases have a big impact on overall inflation. The annual pace is still decelerating (3.0% in August vs. 3.2% in July), but the Fed wants to see consistent monthly moderation, not a rebound.
Is now a bad time to buy a house?
It’s not a bad time if you’re financially ready and plan to stay in the home for at least five years. Yes, rates are high and affordability is challenging, but inventory has improved in many markets and home prices have stabilized or even dipped slightly in some areas. Waiting for perfect conditions—lower rates and lower prices—could mean waiting years, and there’s no guarantee both will align. If you can afford the payment at today’s rates, buy now and plan to refinance in a few years when rates drop.
What’s core inflation and why does it matter?
Core inflation strips out volatile food and energy prices to show the underlying trend in consumer prices. The Fed watches core inflation closely because food and energy can swing wildly month-to-month due to weather, geopolitics, or supply shocks, but core inflation reflects more persistent price pressures in services, shelter, and other categories. In August, core CPI rose 0.3% monthly and 2.4% annually—close to the Fed’s 2% target on an annual basis, but the monthly pace was hotter than expected, which is why markets now expect a rate hike.
Will inflation keep going up?
Not necessarily. The August increase was driven largely by gasoline, which surged 3.9% in the month but is notoriously volatile and could reverse in September. Core inflation is running at 2.4% annually, which is only slightly above the Fed’s 2% target. The bigger concern is that progress has stalled: inflation isn’t accelerating dramatically, but it’s also not falling quickly enough to give the Fed confidence that it’s under control. Most economists expect inflation to drift lower over the next year, but the path will be bumpy, and energy prices remain a wildcard.