Friday's CPI inflation report is even more important than usual. Here's what to expect

People shop for groceries at a supermarket in Manhattan on Aug. 25, 2026 in New York City.

Angela Weiss | AFP | Getty Images

A report due out Friday morning will be the last piece of the inflation puzzle the Federal Reserve will get before making its decision on interest rates next week.

The Bureau of Labor Statistics will release the August consumer price index report at 8:30 a.m.

If the Dow Jones consensus is correct, the report will show that costs for all measured goods and services rose 0.4% last month, putting the annual inflation rate at 3.4%. However, excluding food and energy prices, the respective outlooks for core inflation are 0.2% and 2.4%.

Combined with Thursday's producer price index data — a measure of wholesale inflation — the CPI will help tell Fed officials what their primary inflation gauge, the personal consumption expenditures price index, will show when it is released at the end of September.

The information also is expected to figure heavily into the Federal Open Market Committee's interest rate call next Wednesday, with a percentage point either way possibly meaning the difference between a hold and a hike.

"The September FOMC decision ultimately hinges on the CPI data ... since a majority of PCE components are derived from CPI," Nomura economists said in a note. "Currently, we maintain our Fed call of no rate hike at the September FOMC meeting. However, if August CPI data, especially PCE-relevant components, surprises to the upside, that would significantly increase the likelihood of policy firming next week."

Following Thursday's PPI release, traders raised the odds for a quarter percentage point increase to more than 73%, according to the CME Group's FedWatch gauge of futures prices.

However, expectations have been volatile and highly dependent on data as well as fluctuating energy prices, making the stakes for Friday's release even higher. Fed Chair Kevin Warsh has indicated a reliance on market indicators for direction on monetary policy.

"The September Fed decision looked finely balanced at the turn of the month. September's surge in energy prices will likely tip the balance towards a hike when the Fed meets next week," said Bill Adams, chief U.S. economist at Fifth Third Commercial Bank. "A big surprise from the August CPI report's release tomorrow or a last-minute deal with Iran could still influence the decision."