The consensus reading of the August CPI data is that inflation is drifting back toward target. The August CPI core services print, rising at a 4.0% annualised rate month-on-month, suggests the drift is considerably bumpier than that framing implies.
The all-items CPI jumped 0.40% in August from July, or 4.9% annualised, reversing a low positive reading in July and the steep negative in June when energy prices had collapsed. Gasoline spiked 3.9% month-on-month and 27.4% year-over-year, but energy alone does not explain the bounce. The more durable pressure is coming from elsewhere, and it has been there for some time.
August CPI Core Services: The Persistent Engine
Core services, which account for nearly two-thirds of the all-items CPI and cover housing, healthcare, and insurance, rose 0.33% month-on-month, that 4.0% annualised figure. The broader “core” CPI, which strips out food and energy, rose 0.29% on the month, or 3.5% annualised, and 2.4% year-over-year. Since the start of 2020, core services have surged by over 30%.
Within core services, shelter is doing much of the heavy lifting. According to CNBC, the shelter component, which carries roughly a one-third weighting in the index, climbed 0.5% in August and accounted for about 70% of the core increase. Rent of Primary Residence rose 0.23% on the month (2.8% annualised; 2.7% year-over-year). Owner’s Equivalent of Rent (OER) rose 0.19% (2.3% annualised; 3.1% year-over-year).
The OER number is worth pausing on. As Wolf Richter argued on Wolf Street, OER measures what a panel of homeowners think their property would rent for, rather than the actual costs they bear: homeowner’s insurance, property taxes, HOA fees, repairs and maintenance. Those actual costs have been rising sharply, and none of them enter the CPI calculation. OER, in other words, almost certainly understates the shelter burden on homeowning households even as it dominates the services index.
Where the CPI Measure Is Actively Misleading
Shelter is at least a coherent proxy, however imperfect. Two other components are harder to defend. The health insurance CPI shows a year-over-year decline of 8.5%, and the medical drugs CPI is down 2.7% year-over-year. Anyone who has renewed a health insurance policy or collected a prescription recently will find those numbers difficult to square with lived experience. Richter’s characterisation of these components as “a scandal” is blunt, but the methodology does produce results that systematically pull the services CPI downward even as actual medical costs move the other way.
The enrichment data from CNBC reinforces the gap between what the CPI captures and what households are actually paying in services. Hospital and related services costs rose 0.4% in August and are up 5.8% year-over-year. Motor vehicle insurance climbed 0.6% on the month, bringing its 12-month increase to 16.5%. Neither figure makes a compelling case that services inflation is fading. And according to the U.S. Bureau of Labor Statistics, airline fares rose 23.4% year-over-year in August, a number that rarely surfaces in the headline conversation but is felt acutely by consumers.
The “supercore” measure (core services excluding housing) rose 0.31% on the month (3.7% annualised) and 3.1% year-over-year. That figure matters because it strips away the distorting effects of OER and focuses on the services that are most directly responsive to labour costs and demand. At 3.7% annualised, it is not a number consistent with inflation being nearly resolved.
Core goods, by contrast, are providing some offset. The core goods CPI rose just 0.1% month-on-month (1.3% annualised) and 0.7% year-over-year. Used vehicles rose 0.4% on the month but remain 2.3% lower year-over-year. New vehicles edged up 0.3% on the month. Since January 2020, the core goods price level has risen 16%, but the disinflationary impulse from goods is no longer as powerful as it was and cannot be assumed to persist indefinitely.
The food picture offers little relief either. Food at home was flat month-on-month but up 2.2% year-over-year. Egg prices have retreated from their peak, and beef and coffee prices have stalled or edged back slightly, but the report notes they remain “near all-time ridiculous” levels. Since early 2020, the food CPI has risen 32%.
The year-over-year all-items CPI of 3.4% in August is the number most coverage will lead with, and it does represent a substantial deceleration from the peaks of 2022. But the annualised month-on-month trajectory, 4.9% for all items, 4.0% for August CPI core services, runs meaningfully hotter than that year-over-year figure implies. With motor vehicle insurance running at a 16.5% annual pace and hospital services at 5.8%, the “last mile” of disinflation is still very much unfinished business.
