Weekly Update 8/14/2026: US Core Inflation Comes in Subdued Easing Pressure on Fed
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Domestic Economic News
Underlying US inflation was subdued in July, likely easing pressure on the Federal Reserve to raise interest rates. The consumer price index, excluding often-volatile food and energy categories, increased 0.2% from a month earlier, according to Bureau of Labor Statistics data out Wednesday. On an annual basis, it advanced 2.5%, matching the slowest pace since March 2021. Overall, consumer prices rose 0.1% from the prior month and 3.4% from a year earlier. The report suggests the impact of the energy-price shock from the Iran war continued to fade in July. The figures may give the Fed more room to weigh inflation pressures against a recent slowdown in hiring as it debates whether to lift borrowing costs at its Sept. 15-16 meeting. Policymakers will see additional reports on employment and inflation before the September meeting, and investors will be listening closely to Fed Chairman Kevin Warsh’s expected remarks at the central bank’s annual Jackson Hole symposium later this month. Energy and gasoline prices fell for a second month, while grocery prices fell for the first time since March, thanks in part to a record decline in lettuce prices amid the cyclospora outbreak. US gasoline prices rose above $4 a gallon again in July after a US-Iran ceasefire collapsed and hostilities reignited, but remained lower on average across the entire month than in June. Services prices, excluding energy and rents, rose a modest 0.2% following a decline the month before, according to data compiled by Bloomberg. Goods prices, excluding food and energy commodities, rebounded following two months of declines. Shelter prices rose 0.1%, accounting for two-thirds of the overall increase, according to the BLS. Medical care and airfares were among other services categories that saw rising prices. Computer software and accessories prices rose a record 21.2% from a year earlier, while computers, peripherals and smart home assistants advanced by the most in more than four years. Economists are monitoring the impact of price increases announced in June on popular consumer tech products like Apple Inc.’s Macs and iPads, which have been driven by a global shortage of memory chips amid a race to build data centers. In September, the Bureau of Economic Analysis will implement changes to how prices are calculated for certain categories in the PCE index, including legal services, computer software and investment advice. A separate report Wednesday that combines the inflation figures with recent wage data showed that real average hourly earnings declined 0.2% in July from a year earlier, extending a string of weak readings since the Iran war began.
US wholesale inflation decelerated in July from a year earlier by more than estimated, helped by a further decline in energy and food costs. The producer price index rose 4.7% from July 2025 after a 5.5% annual increase in June, according to Bureau of Labor Statistics data out Thursday. On a month-over-month basis, the PPI was unchanged. Excluding food and energy, producer prices climbed 4.2% from a year ago and 0.2% compared with June. The PPI report follows consumer price data showing moderating inflation, adding to evidence that the initial war-driven energy shock is continuing to fade. That said, the recent flare-up in the Middle East is raising concerns about stubborn inflation. Federal Reserve officials will have access to additional consumer and producer price data before their next policy decision in mid-September, as well as another report on the labor market. So far, policymakers are having to weigh lingering inflation pressures against a recent slowdown in hiring. Energy prices declined 3.1% from June, the second straight decline, while food prices dropped by the most since the start of the year. Several components of the PPI are also of particular interest to the Fed because they feed into its preferred inflation gauge, the personal consumption expenditures price index. Those categories offered mixed signals. Portfolio management fees jumped by the most in more than a year, while hospital outpatient care also posted a big increase. Prices for physician care and hospital inpatient care were tame. The Bureau of Economic Analysis is scheduled to release July PCE price data, along with income and spending figures, on Aug. 26. The PPI report also showed transportation and warehousing costs declined 1.8% in July, the most since April 2023 and adding to evidence that the impact from high fuel costs is diminishing. A measure of inflationary pressures earlier in the production process — prices of processed goods for intermediate demand excluding food and energy — rose the least since November.
US small-business optimism rose in July to the highest level in almost a year as firms ramped up hiring plans and inflation pressures eased. The National Federation of Independent Business index increased 2.4 points to 99.8, the highest level since August 2025. Eight of the 10 components that make up the gauge improved and two declined. The net share of US small businesses planning to add jobs jumped to the highest level since October 2022 while the share planning to make capital outlays in the months ahead advanced to the strongest reading since the end of 2024. Concerns around inflation softened. Reports of inflation as the most important problem for business owners fell for the first time this year. The net share of firms that reported raising prices fell for the first time since February, just before the US and Israeli military strikes on Iran sent oil prices higher. A smaller share of businesses are planning price increases in the coming months. Businesses are investing and expanding despite uncertainty that is likely related to the war with Iran. “Although uncertainty is currently elevated, Main Street anticipates that business conditions will continue to improve,” NFIB Chief Economist Bill Dunkelberg said in a statement.
US sales of existing homes fell to a three-month low in July as elevated prices and mortgage rates continued to weigh on the housing market. Contract closings decreased 1.7% in July to an annualized rate of 4.06 million, according to National Association of Realtors figures released Tuesday. That was in line with the median estimate of economists surveyed by Bloomberg. The weaker sales figures show a moribund housing market as still-elevated asking prices and rising borrowing costs this year keep many prospective buyers sidelined. The resale market has been stuck near a 4 million annual sales rate since late 2022, awaiting a catalyst for a sustained rally. “A significant housing market recovery is unlikely, as long as monetary policy remains relatively tight, the labor market subdued, confidence depressed, and population growth constrained by tighter immigration policies,” Oliver Allen, senior US economist at Pantheon Macroeconomics, said in a note. In recent months, home-financing costs and prices went in the wrong direction. Thirty-year mortgage rates have been climbing since the late-February start of the war in Iran, and recently reached a one-year high of 6.81%. The median sales price increased 2% from a year earlier to $434,100. That was the highest selling price for any July on record and extended a stretch of annual price gains that started in summer 2023.
A previous report showed the median sales price across the country crept up by 1.5% in the second quarter from a year ago. Inventory remains lower than pre-pandemic levels. In July, the supply of existing homes decreased 0.6% from a year earlier to 1.54 million, the NAR report showed. One silver lining is the nation’s affordability crunch is easing when compared with last year as rising household income growth has generally outpaced home price appreciation, Mark Fleming, chief economist at First American Financial Corp., wrote in a recent blog. However, even some of that improvement has been eroded lately because of rising mortgage rates. NAR’s housing affordability index, which measures whether a typical family earns enough to qualify for a mortgage for a median-priced home, increased 5.1% in July from a year ago, according to new figures released Tuesday. Previously owned home sales in the South, the nation’s biggest home-selling region, decreased 3.1% to a four-month low. Sales in the Midwest fell 2%. They were unchanged in the West and up in the Northeast. First-time buyers accounted for 29% of sales in July, down from 33% a month earlier.
Filings for US unemployment benefits rose last week after hovering near historic lows. Initial claims increased by 9,000 to 209,000 in the week ended Aug. 8, according to Labor Department data released Thursday. The median forecast in a Bloomberg survey of economists called for 202,000. Continuing claims, a proxy for the number of people receiving benefits, fell to 1.78 million in the previous week. The increase in filings could reflect typical summertime volatility in a period when seasonal employment patterns and the timing of holidays often affect the data. Economists will look for more than one week’s worth of data before reassessing the recent stability of the labor market. The four-week moving average of new applications, a metric that helps smooth out volatility, was unchanged at 199,000 last week.
Interest Rate Insight and the Fed
Federal Reserve Bank of Chicago President Austan Goolsbee said “the biggest problem facing our economy right now” is inflation. Indicators suggest “the labor market is stable without being good,” Goolsbee says in a video posted Tuesday on Wired’s YouTube channel. He added, “as long as the consumer remains healthy, I think the economy is going to remain healthy.” There was nothing particularly earth-shattering about his comments as he is notoriously hawkish. Federal Reserve Bank of Richmond President Tom Barkin laid out an argument to hold interest rates steady in light of signs that inflation is declining, but also acknowledged the risk that some price pressures could become embedded, eventually forcing officials to tighten policy. “Much of today’s elevated inflation level has come from shocks, which should pass,” Barkin said Thursday in Greenville, South Carolina, citing tariffs and the oil shock from the Iran war. But, he added, if supply chain challenges and the investment boom related to artificial intelligence continue, that could generate more persistent price pressures. “Inflation has been too high for too long, risking an upward shift in the price expectations of firms and consumers,” he said. “If true, this argument suggests help is needed to bring inflation all the way back down to target.” Barkin didn’t reveal which argument he would support when policymakers meet in September. The Federal Reserve kept interest rates unchanged for the fifth straight time last month. Still, a growing chorus of officials has argued that tighter monetary policy is needed to return inflation to the central bank’s 2% goal. Recently released economic data have been mixed, doing little to resolve the division among policymakers. Consumer prices rose modestly and in line with expectations in July. Meanwhile, the unemployment rate declined to 4.1% despite another month of weak hiring. Barkin highlighted the unemployment rate has remained below 4.5% for 58 months, marking the longest streak on record. Consumers, he said, are still finding ways to spend, even as low-income households stretch their dollars. Additionally, he pointed to investment beyond AI data centers. “Bank pipelines are healthy. Mergers and acquisitions are active. Leases are being signed. Factories are being built. The defense sector is booming. Many business leaders explain they’ve concluded high uncertainty is the new baseline. They can’t afford to wait any longer,” he said.
The US government sold 30-year bonds at the highest interest rate in a quarter of a century, after a historic selloff that has stirred speculation the nation will tilt borrowing further toward short-dated maturities. The Treasury sold $25 billion of 30-year debt at its monthly auction on Thursday. In the when-¬issued market, where securities are traded before they are actually sold, the new bond had a projected yield of around 5.23% — which would be the highest borrowing cost since 2001. It’s a headache for President Donald Trump and Treasury Secretary Scott Bessent ahead of midterm elections in November. Lofty government financing costs are already feeding through to the broader economy, after years of elevated inflation and government spending. The Treasury’s concern appeared to be on show last week when it tweaked its debt-sales guidance in a way that opened the door to potential cuts to long bond supply. Meanwhile, investors are still not rushing to lock in yields at multi-decade highs, signaling a collective wariness that the selloff may not be over. “We’re not really at a level where people seem to be going crazy, saying ‘I want to buy the 30-year,’ and that should be a warning,” said John Fath, a managing partner at BTG Pactual Asset Management US LLC. “Bessent may try to address it by decreasing supply, but there’s already a lot of 30-year paper issued, so it’s not necessarily just new supply driving price action. It’s new sellers.” Long-term yields surged past 5% this year on investor concerns that a rise in energy prices will boost cost pressures, forcing the Federal Reserve to keep interest rates elevated for years to come. That’s on top of heightened Treasury supply from years of fiscal deficits, a sudden ramp-up of corporate borrowing to fund the artificial-intelligence boom, and waning demand from traditional buyers of long-dated bonds.
Impactful International News
Germany’s transport minister said the government is monitoring fuel-price spikes as low water levels spurred by intense heat this summer trigger higher prices in some regions of Europe’s largest economy. Steffen Bilger, who joined Chancellor Friedrich Merz’s cabinet on July 29, said he opposed a fuel rebate similar to one agreed to in April in response to the war in Iran as “no longer possible and no longer affordable.” But the coalition partners are in discussion as the effect of critically low river levels reverberates, including in higher prices. “That is of course another effect in certain regions, where prices have risen because of the supply problems,” Bilger said on Tuesday in the northern port city of Kiel. “We do not yet have a supply crisis, the supply chains are functioning, but there are price spikes in some regions.” Europe is contending with another heat wave this week, as soaring temperatures raise the risk of wildfires, threaten crops and dry watersheds that feed the region’s waterways, including the Rhine, Danube and Po. River navigation and power production have been disrupted by dwindling water levels. The barge clearance level at Kaub on the Rhine, a key chokepoint for river shipments to southern Germany and Switzerland, continues to drop. It fell to 24 centimeters (9.5 inches) a week ago, the lowest since records began in 1880, and reached 14 centimeters on Tuesday. Forecasts from the Federal Waterways and Shipping Administration show the level could fall to 9 centimeters by Saturday. Bilger called a crisis meeting last week to take action, including lifting state driving restrictions on public holidays to keep supply chains open. Construction work is also being suspended to ensure the movement of goods, Bilger said. He plans to hold another meeting on Wednesday. “The situation remains worrying, which is why it was good that we acted at short notice,” Bilger said. Climate change is increasing the frequency and intensity of extreme heat in Europe, the world’s fastest-warming continent, straining power grids, sapping water supplies and curbing farm output.
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