Inflation Prediction for August - CPI stable in the 2.5 to 3% through mid-2026

Data release August 2025

Inflation remains a focal point for markets, with mortgage rates closely tied to consumer price dynamics. The latest CPI release (July 2025) shows inflation holding near trend, reinforcing expectations for moderation in the coming year. While volatility persists in certain categories, the overall picture suggests inflation will likely stabilize in the 2.5%–3.0% range over the next 12 months.

Several key observations stand out:

• Shelter costs remain the largest and most persistent driver of inflation.

• Medical services and used vehicles are running well above the total inflation rate.

• Energy is a deflationary force, helping to offset upward pressure from other categories.

• The overall CPI measure continues to trend downward, offering support to the Federal Reserve’s rate management outlook.

See our latest inflation chartbook.

Category-Level Breakdown

The table below shows the CPI categories by their relative size and year-over-year contribution. Categories with contributions above the overall 2.7% inflation rate are highlighted.

Inflation Category	Size of Category	Inflation Contribution	Highlight
Shelter	32.0%	3.7	✅ Above avg
Other	30.0%	2.5
Food	14.0%	2.9	✅ Above avg
Energy	9.0%	-1.6
Medical	7.0%	4.3	✅ Above avg
New vehicles	4.0%	0.4
Used cars and trucks	4.0%	4.8	✅ Above avg
All items	100.0%	2.7	Benchmark total

Outlook

Looking ahead, I expect inflation to moderate, with headline CPI gradually aligning closer to the Fed’s long-run target. Shelter will continue to weigh heavily, but as new housing supply enters the market and wage growth stabilizes, pressures should ease. Energy remains the wildcard, with geopolitical risks creating the potential for renewed volatility.

In summary, while challenges persist, the economy appears to be entering a period of measured disinflation, reinforcing the likelihood that mortgage rates and Treasury yields will drift modestly lower over the coming year.