US inflation eases to 3.4% as shelter costs remain the stubborn holdout

The Bureau of Labor Statistics reported on August 12 that the Consumer Price Index rose 3.4% year-over-year in July 2026, ticking down from 3.5% in June. It’s the second straight month of deceleration, and it landed right on market expectations. The monthly picture tells a more nuanced story. CPI edged up 0.1% from June, a rebound from the prior month’s 0.4% decline. Shelter costs accounted for roughly two-thirds of July’s monthly gain. The numbers behind the number Shelter rose 0.1% on the month. Housing costs make up about a third of the overall index. Energy prices fell 1.5% in July, providing a meaningful drag on the headline number. Core CPI, which strips out food and energy, increased 0.2% month-over-month. On a year-over-year basis, core inflation came in at 2.5%, down from 2.6% in June. Inflation peaked at 4.2% back in May 2026. January 2026 actually saw inflation as low as 2.4% before it surged again in the spring. What the Fed is watching The Federal Reserve targets 2% long-run inflation. Core inflation at 2.5% is close to that target, but shelter costs remain elevated. Housing inflation tends to move slowly because it’s driven by lease renewals and rent resets that take ...