The drumbeat of inflation gets louder 

September 11, 2026

The consumer price index (CPI) rose 0.4% in August, four times July’s pace. A rebound in energy prices added to those gains, with prices at the gas pump jumping 4.1% compared to July and 27.9% from a year ago. Headline inflation held at 3.4% from a year ago but is poised to move higher in response to a sharp escalation in tensions in the Middle East and the ongoing war in Ukraine.

Energy prices aside from the gas pump moved up sharply as well. Fuel oil alone surged at a double-digital pace and soared a stunning 52% compared to last year.  That will be a problem for home heating bills this winter.

Food prices at grocery stores held steady, as big-box discounters and some grocery chains leverage tariff refunds to offer targeted price cuts. Cuts to SNAP benefits, the rise of GLP-1 drugs and the strain low- and middle-income households are enduring has taken a toll on spending for food. 

Restaurants had a harder time holding the line on costs, with prices up 0.3% from July and 3.4% from a year ago. Many restaurants are struggling to maintain margins as costs escalate. Fast-food chains have struggled to retain foot traffic as an increase of moderately affluent consumers has failed to offset the losses from low- and middle-income consumers. 

Core CPI, which strips out food and energy, increased 0.3%, a tick higher than July. The annual pace eased to 2.4% from 2.5% in July. The core appeared less alarming but offered little comfort: price pressures are building as they broadened beneath the surface. 

Shelter costs continued their upward march, with hotel room rates rebounding in August after cooling in July. Many apartment rents are on the rise again due to the lack of affordability in the housing market. Those who can’t buy, rent. Core goods prices edged up only 0.1%, after being revised up in July. Services were the hot spot.

The super core services, which strips out shelter costs and energy services, surged 0.5%. That is up 3% from a year ago versus 2.8% in July. Gains were broad-based in everything from rental cars, vehicle maintenance, educational services, nursing homes, in-home care and daycare. The price for in-home care surged 0.6% on the month but gained at a double-digit rate from a year ago.  

The care economy is highly reliant on immigrant labor. Curbs on immigration have caused pockets of labor shortages in eldercare and childcare. That is pushing up inflation along with demand. The first baby boomers are turning 80 this year. Some 330,000 Haitians lost their Temporary Protected Status at the end of July; about 200,000 were workers. More than half were estimated to be working in the care economy.

More pressure in the pipeline

The producer price index (PPI) jumped 0.4% in August, pushing the annual pace to 5.4%. The underlying measure of core PPI rose 0.3%. That shows pressure building in the pipeline.

The price of diesel jumped 24.1%, driving more than one-third of the increase in final-demand goods. Diesel is embedded in farming, construction, trucking and warehousing; the shock reaches far beyond the loading dock.

This is not just the market for crude oil. Middle East tensions, refinery losses and attacks on Russian facilities have tightened supplies of refined fuels. Even if the price of crude retreats, limited refining capacity can keep gasoline, diesel and jet fuel elevated. That is before replenishing strategic reserves, which were drained in response to the current conflict.

Implications for Fed’s inflation target

Key PPI services feed directly into the personal consumption expenditures (PCE) price index, the Fed’s favored inflation target. Transportation and warehousing costs increased 2.3%, including a 2.0% increase in truck freight; prices for airfares, legal services and hospital care also rose. Those categories carry more weight in the PCE than in the CPI.

Together, the CPI and PPI data point to a 0.4% rise in headline PCE and a 0.3% increase in core PCE in August. That lifts the year-over-year rates to roughly 3.8% and 3.4%. Services remain the pressure point, while diesel is raising freight and delivery costs across the economy.

Aging demographics are increasing demand for medical care and support services at the same time that provider capacity remains constrained. A surge in health insurance  premiums is adding to household and employer costs. That increase in benefit costs is so high that it is eating into wage gains, which is hitting low- and middle-income households harder. 

Meanwhile, affluent consumers continue to spend on travel, recreation, dining and other discretionary services. That spending has proved to be more resilient to higher rates and prices than spending among low- and middle-income households, providing firms with room to pass along additional price increases.

The breadth of inflation is becoming as important as its pace. Price increases are no longer confined to a few volatile goods or energy categories. They have dispersed across transportation, health care, professional and discretionary services. 

Broad-based inflation is harder for the Federal Reserve to dismiss as noise and harder to reverse because it reflects a mix of demand, labor, capacity and supply constraints rather than a single shock. That is a point Fed Chairman Kevin Warsh underscored in his inaugural address at the annual Jackson Hole Symposium. 

Firms nearing a tipping point 

Business surveys show price pressures are accelerating again. The Institute for Supply Management (ISM) manufacturing prices index held at an elevated 71.1 in August, after moving higher in recent months. That is consistent with renewed pressure from energy, tariffs, freight and other material costs.

Service sector price pressures have accelerated even more sharply. The ISM services prices index climbed above 70, its fifth reading above that threshold in six months. 

The persistence and recent acceleration in both surveys suggest firms are nearing another tipping point: after absorbing higher labor, energy, insurance and supply chain costs, they will have little choice but to pass on more of those increases to customers. That is a red flag for the Fed because sticky service sector inflation is evidence that inflation is becoming more entrenched and goes well beyond supply shocks alone. 

Drumbeat becoming a rhythm 

The drumbeat is becoming a rhythm. Supply shocks from energy, trade and war are landing alongside demand shocks from fiscal stimulus, resilient affluent spending and capacity constraints. 

Each round reinforces the last. Firms pass through costs faster, workers seek to catch up and consumers brace for the next increase. Inflation is becoming a tune we all know and anticipate; that is the exact behavior that the Fed is tasked to avert. 

Burn of inflation compounding

A recent study of ADP payroll data revealed that more than a third of earners lost an eye-watering 16% of their purchasing power between late 2020 and the end of 2025. After more than five years of inflation, each new shock lands on a much higher price base. 

Even a slower rate of increase compounds the damage: necessities consume more income, savings erode and households have less room to absorb another surge in energy, food, insurance or healthcare costs. The latest rise at the pump adds insult to accumulated injury.

That helps explain why consumers remain so unhappy even when aggregate wage growth appears to exceed inflation. Averages conceal large losses. Workers who did not change jobs, lower wage households and families who devote more of their budgets to necessities have borne a disproportionate share of the damage. They are running harder merely to stand still.