NEWS AND INSIGHTS | INSIGHTS

CIO Notebook: Hot August CPI Likely Puts the Fed in Motion

September 15, 2026
Shannon L. Saccocia, CFA, Chief Investment Officer—Wealth

The Fed is expected to hike rates on September 16, which may in fact steady the long end of the Treasury curve and continued Fed- and election-related volatility may continue through the start of Q3 earnings season.

U. S. core CPI for August came in hot, up +0.3% month-over-month (MoM) versus +0.2% expected and up +2.4% year-over-year (YoY) – admittedly, this represented the softest YoY move since March 2021. Headline CPI, for its part, was in line, up +0.4% MoM and up +3.4% YoY, rising from +0.1% MoM in July.

Headline CPI reflected the increase of +3.9% MoM for gasoline; the +27.4% YoY increase in gas prices was the primary driver of the +16.3% jump in overall energy over the past year. Grocery prices were mixed for the month, as eggs and dairy were higher while lettuce buyers finally found some relief. Even with food at home flat on the month, overall food prices were up +0.1% as food away from home surged +0.3%. Utility prices also cooled in the month, down -1.1% after an increase of +0.7% in July.

Core CPI, more importantly, came in hot for the month on higher shelter prices, driven by a +2.4% increase in lodging away from home; rents and owners’ equivalent rent were both up +0.2%, down from +0.3%. Airfares were up another +2.7%, with education (+0.8%), communication (+5.4%), and new vehicles (+0.3%) also higher in August while medical care services (-0.2%) and motor vehicle insurance (-0.8%) were lower.

The hotter CPI was corroborated by yesterday’s PPI release, as August headline PPI rose +0.4% MoM (in line with estimates) and +5.4% YoY (versus +0.1% and +5.4%, respectively, in July). The biggest driver of the surge in headline PPI was another spike in energy prices, but even stripping that out, core PPI was up +0.3% as a tick-up in goods prices and a pop in transportation and warehousing overwhelmed tempered services inflation.

While we admit that supply shocks typically produce shorter duration inflationary effects, the continuation of the conflict in the Middle East complicates the current narrative. Passthrough of these higher costs has been up to this point limited, but the move higher in goods indicates that it could be accelerating. In addition, the potential for AI-related spending to push prices higher across a broader set of inputs could exacerbate the problem, offsetting the continued moderation in wage growth and shelter prices for which the Fed has been patiently waiting.

This threat is what the Fed will be weighing going into their next meeting. Loathe to react to a short-term oil supply shock, the FOMC voters instead will evaluate the likelihood for further passthrough, and perhaps more importantly, the growth potential for the economy and the AI ecosystem in particular. As such, we believe the Fed is likely to hike rates on September 16, which may in fact steady the long end of the Treasury curve. In terms of reaction, the increase in the probability of a rate hike to over 90% today was well digested by equity and bond investors, who likely positioned ahead of the release for an in line or above target print. Investors were also likely comforted by a move lower in oil prices despite a strengthening Houthi advance in Yemen. As we relayed in our last update, we believe that both Fed and election related volatility could continue through the start of Q3 earnings season and encourage investors to review their overall asset allocations and take advantage of any pullbacks to position their portfolios ahead of the U.S. midterm elections.

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