We forecast that the consumer price index (CPI) rose 0.4% (0.36% to higher precision) in August, which would be the firmest monthly rise since December. If realized, the over-year-ago pace of headline CPI inflation would increase to a seven-month high of 2.9%. We expect both food and energy CPI prices to lend some support to the CPI print this past month, as food prices rose a firm 0.4% while energy prices (led by petroleum prices) jumped 1.1% to reverse an identically-sized drop in July.

Away from food and energy, we expect core CPI rose 0.3% (0.30% to greater precision) in August – a second month of firm readings but not yet showing a more significant tariff-induced surge, even as price pressures on imported goods are expected to have continued to firm. While we see some near-term risk for a higher core CPI print in August, we still believe stronger readings will appear in coming CPI reports as new tariffs came into place last month (and additional sectoral tariffs remain in the pipeline), firms adjust their expectations about the likelihood that tariffs are reduced, increases in intermediate good prices filter through the chain of production to final consumer goods, and earlier front-loaded inventories are run down. However, given pricing dynamics thus far, we see a rising risk for the pace of increase to be more gradual and drawn-out than our earlier assumptions. Such a dynamic could interact in uncomfortable ways for the Fed with elevated near-term inflation expectations, although we think the focus for Fed policymakers from a risk management perspective will remain the labor market for now.

Looking at the expected details of the August CPI report, we expect largely similar price increases for rent of shelter as in July, with owners’ equivalent rent (OER) having risen 0.28% and tenants’ rent having increased 0.23%. Industry data once again points to a modest 0.3% rise in the lodging away from home CPI, although we note that it has tended to over-predict strength in this component in recent months, and lodging prices have declined for five straight months through July.

However, we expect airfares will once again post a strong gain this month, in the vicinity of 3.5% and pushing up the public transportation CPI 2.5% for August. This is a touch less than the 3.0% surge in July, but continues a sizable reversal after a sharp contraction in airfares between February and May. Travel demand appears to remain relatively weak, but there appears to be less downward pressure recently in comparison with earlier this year.

The fading in the downward pressures in several of these key services prices will contribute to a normalization higher in CPI prints relative to the unusually soft readings earlier this year, which look to have some residual seasonal weakness early in the summer in each of the past few years. The same dynamic is likely to be true for vehicle prices, although our tracking of industry data separately for new and used autos points to one more month of relatively soft price changes before firming as the year advances.

In particular, we see a modest 0.1% rise in new vehicle prices, which represents some modest firming over the past several months but probably not the peak in likely monthly CPI price gains for this year. Meanwhile, after a 0.5% jump in July, our estimate model for used vehicle prices is pointing to a -0.3% reading in August. Wholesale prices last month did rise on a seasonally-adjusted basis, and it is possible for the current tariff-impacted environment to lead auto retailers to accelerate the pass-through into final vehicle prices relative to what had been the typical historical pattern. Medical care services have been strong in recent months, and we look for some reversion in August – but again see some risk that the overall medical care CPI could end up firmer than our 0.3% forecast. Apparel prices have been volatile but largely trendless over the past few years; tariffs have the potential to push up apparel prices in coming months relative to this trend and our forecast looks for a small rise in August.

For the communication CPI, we forecast a 0.1% decline last month that is a smaller decline than in July for a series that has a persistent deflationary trend. We see some scope for tariffs to put upward pressure on the prices of home electronics and entertainment hardware, while recent price increases for some streaming services may offset downward competitive pressures on prices from internet service providers.