US core inflation surprise driven by supercore services, complicating the Fed’s next move

The August CPI report landed like a cold shower on anyone hoping inflation was quietly fading into the background. Core inflation rose 0.3% month-over-month, overshooting the 0.2% consensus estimate. The culprit was a familiar one: supercore services, the stubborn corner of the economy that refuses to cooperate with the Fed’s plans. Supercore services, which strips out both energy and shelter from the services basket, jumped 0.5% in August. That’s more than double the prior month’s 0.2% reading. For a metric the Fed has been watching like a hawk, the acceleration is the opposite of what policymakers wanted to see heading into their September 15-16 meeting. What supercore actually means and why it matters The Fed cares about supercore because it’s essentially a proxy for how tight the labor market is. Services like medical care, airfares, and restaurant meals are labor-intensive. When wages run hot, these prices tend to follow. A 0.5% monthly jump in this category signals that underlying wage pressures haven’t cooled enough to bring inflation sustainably back to the 2% target. Headline CPI, for its part, rose 0.4% month-over-month and 3.4% year-over-year. That matched expectations, ...