The consumer price index rose 0.4 percent with core up 0.3 percent. The Fed will hike. 
The BLS reports the Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in August after rising 0.1 percent in July, the U.S. Bureau of Labor Statistics reported today.
Over the last 12 months, the all items index increased 3.4 percent before seasonal adjustment.
The BLS rounds to 1 decimal point. I calculate 2 decimal places
CPI Month-Over-Month
- All Items: 0.40 percent
- All Items Excluding Food and Energy: 0.29 percent
- Food and Beverage: 0.12 percent
- Shelter: 0.26 percent
- Owners’ Equivalent Rent: 0.19
- Rent of Primary Residence: 0.17
- Medical Care Services: -0.25 percent
- Medical Care Commodities: -0.23 percent
- Energy: 2.10 percent
- Gasoline: 3.90 percent
- Food at Home: 0.04 percent
- Food Away from Home: 0.25
The only bright spot, assuming you believe it, is medical care services.
CPI Month-Over-Month Energy, Gasoline, Utilities
Energy, Gasoline, Utilities and Fuel Month-Over-Month
- Energy: 2.10 percent
- Gasoline: 3.90 percent
- Utilities and Fuel: 0.06
Looking ahead, Trump’s moves in the strait will cause gasoline prices to jump again in September.
CPI Month-Over-Month Food
August Food
- Food and Beverage: 0.12 percent
- Food at Home: 0.04 percent
- Food Away from Home: 0.25 percent
The BLS weights food at home as 8.23 percent of the CPI. It weights food away from home at 5.29 percent of the CPI.
Actual spending is reversed. Thus, the food and beverage percent is much higher every month than reported.
CPI, Shelter, and PCE Year-Over-Year Percent Change
Year-Over-Year CPI and PCE
- CPI: 3.4 percent
- CPI Shelter: 3.0 percent
- CPI Excluding Food and Energy: 2.4 percent
- PCE: 3.7 Percent (July)
- PCE Excluding Food and Energy: 3.3 Percent (July)
CPI Year-Over-Year Food
CPI Year-Over-Year Food Details
- Food and Beverage: 2.9 percent
- At Home: 2.7 percent
- Away from Home: 3.4 percent
Because the BLS underweights food at home and does not include tips at all, food and beverage at 2.9 percent is hugely understated.
Food is 13.52 percent of the CPI
CPI Core Services vs PCE Less Food and Energy
Year-Over-Year CPI Core Services and PCE Less Food and Energy
- CPI Core Services: 3.02 percent
- PCE Less Food and Energy (July): 3.34 percent
I fail to see how anyone can get a rate cut or even a rate hold out of that chart.
The Fed’s preferred measure of inflation is PCE less food and energy. The Fed is also concerned about core services.
The Fed has missed inflation targets for 62 straight months on PCE and 65 straight months on the CPI.
CPI and PCE Are Understated
- Neither measure counts property taxes, homeowner’s insurance, or home prices.
- Food is understated because of improper weights.
- Medical insurance costs are more than a bit suspect.
Yet, economists wonder why people are more upset about inflation than what the numbers show.
Fed Rate Hike Coming
A rate hike in September is all but certain after this report.
For discussion, please see Hello Nay Sayers, the Fed Hikes Interest Rates in 5 Days, Odds 85 Percent
A rate hike is now a done deal, as expected in this corner.
I’m going to take the side of the less angry, bitter, hating Trump folks. I’m sure the LEFT truly believe that their views are correct & just. Some have offered very compelling but clearly angry support for it. I’ve read as much of their views as I can towards the situation at hand. My view – the FED will NOT raise rates this week. We (Trump) cannot win on this. If I’m correct, all the LEFT will say is POTUS threatened to fire Warsh, yada, yada, yada. You don’t act on outdated data when soon to be revised data, that one would hope that FED has access to, is pending. First rule in Life – Don’t screw yourself. There are more than enough people out there wanting to do it.
One of the things that I don’t think they take into consideration is that many homeowners association reserve accounts are drastically underfunded and way behind inflation. Most associations only look at their budget oncea year and are reluctant to up the rates until they have no other choice.
The SPX: 7 April 2025 to 15-23 Oct 2026: A Fractal Replay of 20 Feb 1928 to 13 Nov 1929
I will not be surprised if they skip Sept and do 50bp in December. Trump will officially be a lame duck.
If there is a hike, Trump is going to blow a gasket.
I still say no hike, but lots more supposedly “hawkish” noises.
May I please modify one statement here, Mish, and no offense meant:
“Yet, economists wonder why people are more upset about inflation than what the numbers show.”
Corrected to the likely realities:
“Yet, economists ARE ACTING AS IF THEY wonder why people are more upset about inflation than what the numbers show.”
IT IS ALL A CHARADE AND AN ACT because NO ONE could be this dense. EVEN A 10 year old kid buying his own candy will notice FOOD inflation if that child goes to their local convenience store and buys buys a Chocolate bar.
Their numbers on increase in food prices are woefully understated. They claimed what, 25-30% total increase from Covid thru today? It did that in one year post-Covid! Anyone going to a grocery store in the last 5 years knows it’s a lie.
Agreed. They can’t hike in October right before the election and they can’t sit with their hands tied until after the election. So now is the time to do it. It will be great to see Trump crying about this one! But no one can’t fight gravity forever.
The deficit for the 11 months ended August 31 was $1.965T. The impact of another .25% on over $40T in total debt is not insignificant.
A democratic congress is going to inherit a total f’ing mess. Military wars, Trade wars, tariffs, deficits, a moron as President, a packed administration and Supreme Court, and allies wondering WTF.
Cleaning all that up with both hands tied behind your back is not a job any sane person would want.
All politicians would love that job, insane or not. They all love clout and telling others what to do.
Not to mention insane car costs (new and used are out of control) and car insuance costs. As many have cars ncessary for work, etc.
OMG, an anticipated whole 1/4 point increase. Sheese. Let me tear my hair out.
Ya on top of everything else, Curly.
The current clowns are not the first to suggest that the US “can grow itself out of debt” but the concept is absurd at this point
Managed defaults make a lot more sense
And that is where we are going – managed (hopefully) defaults.
Trump is intentionally wrecking the global economy, which is going to lead to a huge financial/monetary crisis. Some scheme will be concocted to implement a “reset” which will leave sovereign creditors with huge haircuts.
A debtor who cannot reasonably climb out of his hole is insolvent. Assets will go to new owners: creditors become equity holders. In a world of financialization, I think it is finally possible to effectuate a repossession of sovereign property, by issuing new claims on it. I.e., Americans, and even the sovereign America, will not own America. They will be tenants in the lands their forefathers fought for. On the surface, the propaganda will betray little; just slight shifts in apparent friendliness.
The hole we have dug is so deep that the walls are beginning to collapse.
With Bessent doing a treasury operation twist exchanging long bonds for short term bills, he may be doing the taxpayer a disservice by subjecting greater amounts of federal debt to rising interest rates. with the government pushing more debt supply on the market they will need to pay more no matter the duration to sell it. The only way to get debt service expense down is to lower the debt, Hello congress! That is your job.
This is the logical conclusion. They think economic repression will work because it worked after WWII, but we were in such a favorable position post-WWII that anything would’ve worked.
They’re also banking on AI increasing growth, but we found the asymptote of AI. Alignment. There comes a point where something smarter than you is just smarter than you, and you won’t be able to control it. Not apocalyptic AI, but if you can’t control your tool, you can’t use it. The models will have to be lobotomized versions of themselves to be able to be controlled which will prevent them from reaching the potential that investors are banking on. This is the asymptote.
So what do we have? A seriously flawed plan, no magic tech solution, and an economy so overleveraged that we can’t raise rates. Inflation will only accelerate as the corrupt leadership spends more and more in vain efforts to stimulate growth and save equities.
Eventually, they’ll have to sacrifice equities to save the bond market. If they don’t, it’ll require more and more gov spending and magic fedbucks to prop up both markets. That leads to one place, socialism, as more and more people become disenfranchised by higher and higher prices.
If you worked hard and did everything right, but you still get priced out and made irrelevant to the economy, why wouldn’t you give up on capitalism?
They have us splitting hairs over whether the rate hike will be tiny or less tiny. The problem is entrenched and systemic, so what’s the point debating how tiny any rate hikes will be? Rates will never be restrictive again until something very grave happens, so what’s the point?
It’s just a game. What we’re really discussing is how little do they need to hike rates to convince the world that the central bank isn’t a sham.
Mish already said it. 62 months over target. Nobody cares.
Here is the DEFINITION (In LAY terms) of “ASYMPTOTE”:
Imagine you are walking down a path, and there is a fence right next to you. As you walk, you get closer and closer to the fence, but no matter how far you walk, you never actually touch it.
In math, that “fence” is called an asymptote.
It is an imaginary straight line on a graph that a curved line gets incredibly close to, but never quite reaches or crosses as it heads off towards the edge of the page.
The 3 Ways the “Fence” Can Look
Why do they happen?They usually happen because of “forbidden” math rules—like trying to divide a number by zero. Since dividing by zero is impossible, the graph freaks out when it gets close to that number and shoots away from it, creating that invisible boundary line.
To help me tailor this, tell me:
================
Now, can you post a version of your point for us all to see. It would be a great lesson in Calculus.
Thanks. I believe we might all want to learn about this term.
It’s just used as a metaphor to describe diminishing returns, but we can really get into the specific calculus. So, the AI bros were imagining the x-axis as compute and y-axis as intelligence. They said there doesn’t appear to be an asymptote because as you increase compute, intelligence just keeps going up in tandem. Hence, relentless datacenter scaling because they believed they’d either find the ceiling (horizontal asymptote), or no ceiling and eventually find superintelligence. If there is no ceiling / asymptote / diminishing returns, whoever scales the fastest will get superintelligence first. If there was an asymptote, then as you increase x (compute), then y (intelligence) would increase less and less as you go.
But, make x-axis intelligence, and make y-axis alignment compliance. Suddenly, you find a downward slanted asymptote. At first, as you increase intelligence, the AI gets better at alignment compliance as it can start to do things like determine the user’s intent and objective. It can start to recognize things like sarcasm and malicious prompts then prevent these from breaking alignment. So both x and y are increasing together.
Except now, we’ve found that increasing intelligence is starting to decrease alignment compliance. Further increases in x (intelligence) is decreasing y (alignment compliance). The graph starts to turn downwards toward the downward slanted asymptote.
Great description!
So, at some point, AI will slip the leash.
I’m assuming a new FACO: Fed Always Chickens Out. This election season is not a time for me to bet against more institutional decay.
If they only do 1/4, long bond yields rise.
Agreed. A 1/4 point move now followed by nothing in Oct (due to the election) is unlikely to have any noticeable effect on inflation driven by a supply side shock. There’s not going to be enough demand destruction from a 1/4 point rise in the Funds rate. The Fed is once again way behind the curve. The rise in bond yields seems unlikely to be quelled by 1/4 point.
This is a great tidy and efficiently put comment. Thanks!
No doubt now. Let the good times roll.