US CPI forecast at 3.4% as tariff risks build

Truflation has forecast that annual U.S. headline inflation will remain at 3.4% in August as higher gasoline prices, tariffs and producer costs threaten to keep price pressure above the Federal Reserve’s target.

Truflation said in its August inflation report that the softer July CPI reading was driven mainly by falling energy prices rather than a clear easing of underlying costs. The company expects the reversal of that energy decline, along with tariffs and higher input prices, to shape Friday’s Bureau of Labor Statistics release.

The Cleveland Federal Reserve and market consensus also forecast an annual headline CPI of 3.4% and a core CPI of 2.4%. However, both expect headline prices to rise 0.4% from July, compared with Truflation’s 0.3% estimate. All three forecasts place monthly core inflation at 0.2%.

July headline CPI rose 0.1% month over month after falling 0.4% in June, while the annual rate eased from 3.5% to 3.4%. Core CPI increased 0.2% during the month and slowed from 2.6% to 2.5% year over year.

Energy has kept headline CPI above core inflation

Gasoline provided the clearest source of new pressure in Truflation’s August data, rising 3.4% from July and 27.6% from a year earlier. The report attributed the increase to high crude prices, tight fuel inventories, and limited spare capacity at refineries.

Retail gasoline remained above $4 per gallon and moved past $4.10 in early September, according to the report. Truflation said crude prices and supply risks in the Middle East could prevent consumers from receiving material relief unless oil prices fall or U.S. inventories recover.

“The principal reason headline inflation is running above core is the renewed pressure from energy,” Oliver Rust, head of data at Truflation, told crypto.news.

Food and non-alcoholic beverage prices added another 0.5% in August and rose 2.8% over the year. Restaurant prices led the monthly increase, with food away from home climbing 0.7% as operators passed on costs tied to ingredients, wages, utilities and property.

Grocery prices increased more slowly, although Truflation said tight beef supplies and high wholesale food costs limited the decline. Higher gasoline prices could also raise transportation and distribution expenses, adding another source of food-price pressure.

Apparel and communications provided some relief. Clothing prices fell 1% during August as retailers used back-to-school and end-of-summer discounts, while communications prices dropped 0.9% amid competition among mobile carriers and lower effective data costs.

Services costs have remained high despite lower core CPI

Although core inflation is forecast at 2.4%, U.S. service companies continued to report high operating costs. The ISM Services Prices Index increased from 70.3 to 72.6 in August, reaching its highest level since August 2022.

Rust said businesses were paying more for labor, logistics, energy, and other operating needs, but the increases did not pass directly into consumer prices. Productivity has offset part of the wage pressure by allowing companies to produce more with each hour of work.

“While compensation may be growing around 3.5%–4.0%, productivity growth of approximately 2.0%–2.5% means that the increase in labor costs per unit of output can be closer to 1%–2%,” Rust said.

Technology and artificial intelligence have improved output per worker in some industries, he added, reducing the inflation effect of higher wages. Truflation therefore expects services inflation to remain persistent rather than accelerate sharply.

Housing produced a mixed reading. Truflation’s measure rose 0.15% in August but remained 2.32% lower than a year earlier. Rental inflation increased as the supply of newly built apartments started to slow, while high mortgage rates continued to limit home purchases and transactions.

Owned housing prices remained under pressure from weak affordability, elevated listings, and price cuts. Rental concessions stayed common, especially in Sun Belt markets, although the report said slower construction could allow asking rents to rise faster than effective rents.

Tariffs have raised the risk of higher goods inflation

Costs entering the production chain were running well above consumer goods inflation. Goods producer prices rose 6.5% year over year in July, while core goods PPI, which excludes food and energy, increased 4.9%.

Nonfuel import prices advanced 0.4% during July and 4.5% from a year earlier, their strongest annual increase since 2022. Imported capital goods rose 0.9% for the month, goods from China added 0.8%, and prices for imported vehicles and parts increased 0.2%.

Manufacturers also faced high raw-material costs. The ISM Manufacturing Prices Index stood at 71.1 in August, extending a run of rising prices to 23 consecutive months. Truflation linked the pressure to steel, aluminum, petroleum products, imported goods, and tariffs.

The average statutory tariff rate reached about 11% in August and is scheduled to rise to 11.8% by year-end, according to the report. Truflation said importers could delay the effect on consumers by accepting lower margins, selling inventory purchased before the tariff increases, changing suppliers, or negotiating lower prices.

As older inventories are replaced, Rust expects more of the higher landed costs to enter retail prices. Truflation’s analysis found that the effective tariff rate had its strongest correlation with core goods inflation when tariffs led prices by about four months.

U.S. tariff policy has already affected digital-asset markets. A Sep. 4 report on trade policy noted that an earlier tariff announcement covering 60 trading partners had sent Bitcoin below $65,000 as Treasury yields rose and leveraged long positions absorbed most crypto liquidations.

Truflation data have led BLS CPI by 41 days

To construct its U.S. inflation measure, Truflation collects more than 15 million price observations from over 40 data partners. The company maps the observations into BLS spending categories and then applies the weights used in the official CPI.

The resulting index serves as the input for Truflation’s BLS forecasting model. According to Rust, the company’s data have led movements in official CPI by approximately 41 days, or about six weeks.

Since 2011, Truflation’s measure and the BLS CPI have recorded a correlation of 0.955. Moving Truflation’s data forward by 41 days raises the correlation to 0.962, although Rust said the exact lead varies by inflation environment and spending category.

Since the company began publishing BLS CPI forecasts, its estimates have recorded an average absolute deviation of 0.09 percentage points from the eventual government releases, Rust said.

The August reading will also influence expectations for the Federal Reserve’s Sept. 15–16 meeting. A recent Bitcoin market report found that BTC had fallen below $78,000 as hotter producer inflation and rising expectations of a September rate increase reduced demand for risk assets.

August headline producer inflation reached 5.4%, slightly above the 5.3% forecast, while core PPI increased to 4.6%, its highest level since June. CME FedWatch data cited in the report placed the probability of a quarter-point September rate increase at about 60%.

Truflation expects headline inflation to remain around 3.3%–3.4% during the quarter, with monthly readings ranging from roughly 0.2% to 0.4%. By year-end, the company projects a possible decline into the 2.8%–3.2% range if energy prices ease, housing disinflation continues, and businesses pass higher goods costs to consumers gradually.

Federal Reserve Governor Christopher Waller said before the payroll report that the next inflation release would carry considerable weight in his September decision. The BLS is scheduled to publish August CPI data on Sept. 11, five days before the Federal Open Market Committee announces its interest-rate decision.