August CPI: What It Means for FIRE Plans and Stocks

Old-school budgeting vs. FIRE math: what August CPI really changes

Old-school budgeting says set your categories, fix your 50/30/20, and call it a day. FIRE math says your plan lives and dies on real returns, withdrawal rates, and how quickly you adapt when prices shift under your feet. That’s why the August CPI print isn’t just another headline, it’s the scoreboard we check before we pick lineups for Q4. If inflation cools, a 4% withdrawal looks safer and cash ladders can extend; if it re-accelerates, the same budget starts leaking buying power, and equities feel heavier because discount rates refuse to come down.

Quick reality check: the August CPI report from the BLS showed headline inflation running in the low-3% year-over-year range, with core still a notch higher and services sticky; the 3‑month annualized core pace hovered in the high‑2% area. That combo matters. It means real returns on stocks and bonds, the yield you’re getting on cash, and the multiple the market will pay for earnings all depend on whether that “sticky core” keeps sticking. Short T‑bills are still throwing off roughly 5% give or take, which felt great earlier this year when inflation eased, but if core is hanging around the low‑3s, your after-inflation cash return compresses fast, and that affects every line item from your travel budget to the decision to roll a 6‑month bill or reach out to 2 years.

Traditional rules of thumb can break when inflation shifts. The 50/30/20 budget doesn’t know your rent just jumped 7% year-over-year or that health insurance premiums for 2025 open enrollment are up materially in many states, your spreadsheet does. Same with the classic 4% rule: it was built on historical periods where inflation averaged much lower; sequence risk plus higher inflation can eat your cushion, and I’ve seen people realize this only after their “safe” cash buffer didn’t keep up with groceries and property taxes. I know, I sound like the grumpy Wall Street uncle, but I’ve watched this movie too many times.

Where this gets practical, like, right now in Q4 2025, is in the decisions sitting on your desk: rebalancing, cash laddering, and risk budgeting. August CPI feeds directly into real earnings growth assumptions and the discount rate you implicitly use when you look at a P/E. If core stays sticky, the Fed will linger higher for longer, which means cash yields don’t fall as fast as equity bulls want, and your hurdle rate for taking risk stays elevated. That nudges a FIRE plan to adjust faster: trim overweight winners if multiple expansion was the driver, add to inflation-resilient cash flows, nudge the cash ladder out a rung or two if the term premium compensates you, or keep it short if the curve doesn’t pay you enough, sometimes boring T‑bills are the hero, then, well, not so much.

And I’ll be honest, my enthusiasm swings here. If August had marked a clean step down in core, I’d be talking about taking duration risk a bit more boldly and giving equities a little benefit of the doubt into year-end. With services still sticky, I’m in the camp that says move, but don’t sprint: rebalance with a ruler, not a machete, and make your budget inflation-aware in real time (rent, food-at-home, insurance lines). We’ll explain what the August print means for real returns, cash ladders, and equity discount rates, and which knobs to turn first, because Q4 choices can either lock in purchasing power or quietly leak it.

Headlines vs. core: the CPI pieces that actually move your money

Here’s the simple-but-not-simple split. Headline CPI includes everything, food, energy, shelter, the whole cart. Core CPI strips out food and energy because those bounce around. The Fed then goes one step deeper and watches core services excluding housing (the so‑called “supercore”), because that piece lines up most closely with wages and service-sector margins. When my inbox pings on CPI day, I scan three lines first: headline, core, and core services ex-housing. In that order. Then I look at shelter to sanity-check the story.

Weights matter more than headlines. The Bureau of Labor Statistics’ 2024 CPI relative importance tables show shelter is roughly one-third of the index (about the mid-30s percent), energy is about 7%, and food is in the low-to-mid teens. Those shares don’t flip month to month. So when shelter wiggles, it can move the whole print. When energy jumps, it can dominate the monthly change even if the rest is calm. That’s why August, one month, can feel outsized in markets even if the longer trend hasn’t budged much.

Shelter: big, laggy, and annoying (but don’t overreact). Shelter CPI is mostly Owners’ Equivalent Rent (OER) and rent of primary residence. It’s well documented that these measures lag new-lease data by ~6-9 months, because they sample existing leases and smooth changes. Private rent trackers (Zillow, Apartment List, RealPage) already cooled earlier this year, while the CPI shelter line is still catching up. So if August showed a bump in shelter, it doesn’t automatically mean a fresh uptrend in rents, it can just be the lag doing its thing. I had my own place reset in July at +1% y/y, and it took my city’s CPI rent index months to reflect similar cooling. Not scientific, but it matches the mechanics.

Core services ex-housing: the sticky part the Fed actually cares about. This slice, think medical services, insurance, transportation services, recreation, hospitality, leans on labor costs. It doesn’t swing with oil. When this stays above 3% annualized on a 3-6 month basis, the Fed gets cautious about cutting, and discount rates in your equity models don’t fall as fast as bulls want. Supercore tends to move slowly; one soft August print can hint at a turn, but two or three in a row is what changes policy odds and your duration math.

Energy: great at whipsawing, poor at predicting policy. Energy’s ~7% weight can dominate the monthly headline, gasoline alone can flip the sign on the print. Cyclicals like transports, discretionary, and small caps will sometimes rip or slip on that. But the Fed usually “looks through” energy spikes unless they bleed into wages and services. For your portfolio, that means hedge or position tactically around energy volatility if you want, but don’t rewire your strategic bond duration or long-term equity allocation because of a gasoline pop.

So, about August. A single month can alter trend math because markets trade on the second derivative. A 0.3% vs 0.2% monthly core can reprice the path of cuts and push 2s/10s around in a hurry. But for budgets and FIRE plans, treat August as a nudge, not a verdict: watch core services ex-housing for persistence; give shelter the lag discount; and recognize energy’s ability to move your mark-to-market without changing your five-year plan.

Quick checklist: If August strength came from shelter, fade it a bit. If it came from supercore, tighten risk and keep cash ladders honest. If it was energy, expect equity beta to wobble, not the Fed.

The Q4 rate path: how one print steers yields, multiples, and your loan costs

Here’s where August matters for the stuff you actually feel. A cooler August CPI print usually nudges Treasury yields lower and gives equities a little multiple air; a hotter print does the opposite. It’s not mystical. When core lands 0.1 percentage point below expectations, 2-year and 5-year yields often slip within a session or two as markets add a cut later this year; the reverse happens on an upside surprise. And because we’re in Q4, when issuance calendars are busy and holiday retail chatter gets loud, those moves ripple through quickly.

Quick mechanics, because this is what moves the screens:

• Yields and P/Es: Lower inflation implies lower expected policy rates. That typically pulls down intermediate Treasury yields (5s/10s), which lifts fair-value price/earnings. Rule-of-thumb from the models we actually use on the desk: a 25 bp move in the 10-year can shift the S&P 500’s “justified” forward P/E by roughly 0.3-0.7 turns, depending on earnings growth and equity risk premium assumptions. Not perfect science, but close enough for portfolio triage.
• Mortgages: The 30-year fixed rate tracks the 10-year Treasury plus a spread. Over 2010-2019, that spread averaged about ~1.7 percentage points per Freddie Mac’s PMMS data; it widened materially in 2023 amid convexity and MBS liquidity noise. Point is: a softer August tends to shave the 10-year and can lower quoted mortgage rates within days. You’ll sometimes see lenders reprice intraday after a big CPI surprise. Yep, it happens that fast.
• HELOCs: Most price off Prime, and the U.S. Prime Rate is conventionally the fed funds target upper bound + 3%. So HELOCs move with the expected path of the Fed more than with the 10-year. If markets shift from “no cut” to “one cut later this year” on a cool August, HELOC quotes can drift down as forward-rate agreements reprice, even if the Fed hasn’t moved yet.
• Small-business credit: Lines are often Prime-based; term loans split between Prime and SOFR. When CPI changes cut odds, banks adjust margins and appetite. You may see offers tighten or loosen the same week. I’ve literally had clients email me a screenshot Monday, and by Thursday the rate grid changed.

And the equity side, because I know that’s where the questions pile up. Rate expectations, not the current fed funds print, drive Q4 sector rotations. A cooler August tends to favor longer-duration growth (software, payments, parts of consumer internet) as discount rates drift down. A hotter number usually rotates money into value/short-duration cash generators (financials ex-rate sensitive subsectors, some staples), with energy beta depending on whether the CPI heat came from gasoline or from sticky services. I know, it’s a bit circular; that’s markets.

But here’s the speed element that catches people off guard: one CPI can shift quotes in 24-72 hours. Dealers update mortgage rate sheets daily; MBS prices gap on CPI; option-implied path of rates moves; and your refinance calculator either says “go now” or “hang tight.” If August came in cool, you might get a 10-20 bp improvement in mortgage quotes quickly. If it’s hot, that window can shut before you finish your rate-shopping spreadsheet, been there, slightly annoyed.

How to translate to decisions

• Homebuyers/refi: Lock increments. If August was cool and 10s are slipping, ask for a float-down option; if hot, consider a shorter lock or waiting for the next data window (PCE or payrolls) rather than forcing a bad print.
• HELOC users: Watch market-implied December policy odds. A higher probability of a cut later this year usually shows up in Prime expectations and can trim your variable payment. Not huge at first, but every quarter point matters.
• SMB owners: If you need a term loan for year-end inventory, price it against SOFR swaps the same day you get quotes; spreads are one thing, the base rate moves are the real swing factor.
• Equity allocation: Don’t overhaul, but nudge duration. Cooler August? You can add a touch of growth beta. Hotter? Keep some value/cash-flow ballast and don’t stretch on multiples into a rising 10-year.

Net-net: August CPI cool usually means down yields, up P/Es, easier mortgage/HELOC vibes; hot flips that script. The Fed watches the trend, but your pricing desk moves on the print.

FIRE playbook tweaks: withdrawal rates, cash buckets, and 2026 COLA math

August’s CPI read isn’t just a market story, FIRE households have to translate it into spending and sequence risk. Two big levers: how you set withdrawals and how much cash you keep. And, yes, the COLA math matters because Social Security benefits index off a different gauge than the one most portfolios watch day to day.

Withdrawal rates, ditch the fixed 4%, use guardrails tied to realized inflation. A static 4% rule is simple, but it doesn’t breathe with the tape. Use a dynamic band, say 3.3% to 5.0%, with triggers that reference both portfolio level and realized inflation. Example policy you can actually live with:

• Base: Start at 4.0% of initial portfolio, adjusted each year by realized inflation (CPI-U) unless a guardrail is hit.
• Lower guardrail: If current portfolio drops below 80% of its inflation-adjusted initial value or 12‑month CPI runs above 4%, cut the withdrawal by 10% nominal until back inside the rails.
• Upper guardrail: If portfolio exceeds 120% of its inflation-adjusted initial value and 12‑month CPI is under 3%, grant yourself a 10% raise.

Why this? It tackles the two real enemies at once, bad early returns and sticky inflation. You’re not guessing; you’re reacting to what just happened. Same idea, slightly different words: make your spending rules respond to reality, not to a whitepaper average.

Cash bucket, 2-3 years in cash/T‑Bills, refreshed when the CPI trend bends. Sequence risk hates forced selling. Keep 24-36 months of core spending needs in a ladder of T‑Bills and high‑yield savings, then backfill it when either: (a) equities are up meaningfully from your last refill, or (b) the 6‑month annualized CPI trend shifts by 1 percentage point or more from your last rebalance checkpoint. If inflation cools quickly, you can safely run the bucket closer to 24 months; if it re-accelerates, push closer to 36. Personally, after seeing clients in 2022 burn through cash too fast, I started favoring a fatter 30-36 month buffer when CPI is humming above 3% year‑over‑year, sleep is alpha.

COLA mechanics, remember, it’s CPI‑W and it’s Q3. Social Security’s COLA is not based on headline CPI-U. It uses the CPI‑W average for Q3 (July-September) versus the prior year’s Q3. August matters because it’s one of the three months in that average. The formula is straightforward: average CPI‑W (Q3 current year) divided by average CPI‑W (Q3 prior year), minus 1, rounded to the nearest 0.1%. For context, the SSA set the 2023 COLA at 8.7% (based on 2022 Q3 CPI‑W) and the 2024 COLA at 3.2% (based on 2023 Q3 CPI‑W). Those are big swings, and they fed directly into retiree cash flows.

Action steps keyed to August:

1. Index your nominal withdrawal for 2026 off the evolving 2025 Q3 CPI‑W average. August’s CPI‑W print is one‑third of the COLA math, track it, don’t guess.
2. Guardrail check: If August CPI points to a hotter Q3 average (say, CPI‑W trend re-accelerating over the prior quarter), pre‑decide a small cut (5-10%) to the 2026 nominal withdrawal unless markets rally into year‑end. If August looks cooler, you can hold the line.
3. Cash ladder refresh: If the 6‑month annualized CPI (U or W, just be consistent) moved ±1% versus your last refresh, extend or shrink the ladder by 6 months. Refill from equities only if your equity sleeve is above its target by at least 2 percentage points; otherwise, use bond maturities.

One more nuance: COLA helps, but Medicare Part B premiums can offset part of it. Don’t spend the raise twice. Plan the 2026 budget net of the expected Part B change, then apply your guardrail rule. And be honest about uncertainty, I always am, because the August print can look one way and the September print can flip the Q3 average. Your policy needs to work when you’re wrong, not just when you’re right.

Bottom line: use inflation‑aware guardrails, keep 2-3 years in cash/T‑Bills, and remember that August’s CPI‑W shapes one‑third of your 2026 COLA. You can’t control the prints, but you can control your rules.

Positioning right now: stocks, bonds, TIPS, and I Bonds after the August read

Here’s how I’m translating the macro into actual weights. No hero trades. Just nudges, hedges, and odds that match Q4 2025, where rates are still choppy and inflation risk isn’t gone but it’s…manageable.

• If August showed moderation (core disinflation still intact, headline helped by steadier energy): I’d add a little duration and a little quality. Think +1 year to your aggregate duration versus your core benchmark, centered in intermediate Treasuries (5-7 years). On equities, tilt 2-3 percentage points toward quality growth, high ROC, net cash or modest use, and pricing power. I know, “quality growth” sounds buzzwordy; I mean firms with gross margins that didn’t crack in 2022-2024 and don’t need cheap money to exist.
• If August ran hot (sticky services, rent re-acceleration, fuel bouncing): shorten duration by ~1 year, increase value and cash‑flow‑positive cyclicals by 2-4 percentage points (industrials, energy services, selected banks with strong deposit franchises). Keep bond exposure but bias to shorter-duration and front-end credit you actually want to own through volatility. It’s the boring stuff that keeps the plan intact.

Quick TIPS sanity check, because this trips people up (and honestly, I have to re-check myself sometimes): use TIPS where your real spending is inflation sensitive, healthcare, rent, tuition. Two yardsticks matter: the 5‑year and 10‑year breakevens. Those are the market’s implied average CPI over those horizons. If your household inflation is, say, 3% because of medical and housing, and the 10‑year breakeven sits below that, owning some TIPS raises expected real certainty for you. If your personal inflation tends to run below the breakeven, nominal Treasuries pay you more real yield on average.

As of late September 2025, market pricing had breakevens roughly in the low‑2s (5‑year near ~2.3% and 10‑year near ~2.4% per Treasury market data/H.15). I’m not anchoring your plan to those exact prints, these wiggle, but it’s a decent reference point for deciding whether TIPS belong in your “needs to keep up with prices” bucket. Small reminder I wish someone had hammered into me in ’08: TIPS protect against realized CPI over time, not short-term shocks in risk assets. Pair them with cash for near-term needs.

I Bonds, yes, the evergreen coffee chat topic, remain useful for tax‑deferred, inflation‑linked cash. The inflation component resets in November based on the September NSA CPI‑U level; August is only a preview, not the driver. Mechanically, the semiannual inflation rate is 2 × ((Sep CPI‑U / Mar CPI‑U) − 1). That becomes part of the composite rate with the fixed rate. Practical translation: if July and August CPI‑U were soft, that points the November variable rate lower unless September pops; if they were firm, you might see a higher variable component. But it’s September that seals it. I know that’s pedantic, I just want it clear so we don’t push buy/sell buttons on a teaser month.

Position sizing? For most balanced investors right now: 30-50% of bonds in intermediate Treasuries/Ag, 10-25% in TIPS if your budget is CPI‑sensitive, the rest in short-duration and high‑quality IG credit. On equities, lean 55/45 quality‑growth/value if August moderated; flip that tilt toward value/cyclicals if it ran hot. And keep your 2-3 years of withdrawals in cash/T‑Bills like we talked about earlier this year, still non‑negotiable for sequence risk, especially with Q4 earnings season and holiday‑energy price noise ahead.

Circling back to the point I made above: you don’t need to guess the exact path. You need a plan that moves in small steps when the odds shift. If we get a September print that contradicts August (it happens), your guardrails should flex, extend or shorten duration by ~6-12 months, rotate 2-3 percentage points across styles, and then stop. Over‑adjusting is how good years become okay years.

Bottom line for your wallet: the benefits that actually matter right now

Here’s the practical play: treat a single CPI print like weather, not climate. Use it to nudge, not rewrite, your plan. Tie your spending and withdrawals to what inflation actually did, not what you fear next. If your last-12-month household inflation ran ~2-4% (ballpark typical years outside shocks), bump your withdrawal or budget line items by that range and be done. And cap it. My take: a 0-3% “inflation band” on annual raises keeps plans resilient without whipsawing lifestyle. If shelter is your swing factor, remember the BLS 2024 weights had Owners’ Equivalent Rent and rent at ~34% of headline CPI, food-at-home around 7-8%, and gasoline closer to 3-4%. So a hot gas month feels big at the pump but it’s a small slice of the index, and your plan.

On portfolios, let the CPI trend guide your duration and sector tilt, not your entire allocation. A softer August? Extend duration by 6-12 months and keep a quality-growth lean. A hotter August? Trim duration the same modest amount and nudge toward value/cyclicals. Then stop. And yes, I know there’s gray area: services inflation versus goods, shelter lag, airfare noise. That’s exactly why the adjustment should be small. For context, the long-run median CPI month-over-month change since the late 1990s hovers near 0.2%, single months wobble; trends matter.

Cash ladders are where one-month mispricing actually pays you. If markets extrapolate a hot/cool August into the next year, front-end yields can pop or sag for a week or two. Use that. Refresh the next 6-18 months of your T-Bill/CD ladder when pricing gives you a freebie. I’ve done this for years, sometimes I’m a day early, sometimes a week late, but the point is you lock real dollars. And you avoid the “I’ll wait for certainty” trap that usually costs you carry. Minor note: if I’m remembering right, the bid-ask on 6-month Bills tightened earlier this year around payroll weeks; not a huge deal, but it makes auto-laddering simpler.

And because it’s August data feeding Q4 chores, use the window to prep real actions. Quick checklist below. It’s not exciting, except it kind of is when you see the tax line in April.

• Rebalance: If stocks outran bonds on the August narrative, harvest that drift back to target. 1-2 percentage points is enough.
• Tax-loss harvesting: Vol spikes around CPI can hand you red prints. Realize losses, swap into like-for-like exposure, and mind the 30-day wash-sale rule. Losses bank against 2025 gains and up to $3,000 of ordinary income (per IRS rules in effect for years like 2024).
• Benefit updates: Open enrollment hits soon. If realized inflation lifted your childcare, transit, or healthcare costs, adjust FSA/HSA contributions now. Medicare Part B premiums reset annually, build that into the 2026 cashflow if you’re on the cusp.
• Withdrawal policy: Set your 2026 raise off 2025 realized CPI (not the forecast). Consider a guardrail like: CPI raise up to 3%, pause raises if portfolio drawdown >12%.

One month is a nudge, not a mandate. You earn the year by compounding reasonable decisions, not heroic ones.

Last thing. If August’s shelter stayed sticky while goods cooled, very possible given how sticky that category is, the right response isn’t to chase housing stocks blindly. It’s to acknowledge that shelter’s heavy weight (again, ~34% in 2024 BLS weights) can keep headline above core comfort, and to keep some TIPS (10-25% of your bond sleeve if your budget is CPI-sensitive, like we said earlier). I’m genuinely more upbeat on the “small, repeatable edges” here than any macro call. And yeah, I’m not pretending to know September’s print; I’ve been faked out by airfare more times than I care to admit.

So, react smartly to the August read, prep your Q4 moves, and don’t overfit. That’s the real money result.

Frequently Asked Questions

Q: Should I worry about my Q4 budget if August CPI is in the low‑3% range but core is still sticky?

A: Short answer: worry a little, adjust a lot. The August print showed headline in the low‑3%s and core a bit higher, with services sticky, so your cash’s after‑inflation bite is smaller than it looked earlier this year. Practical moves for October: 1) Re-base your budget using actual YoY changes (rent +7%? premiums up for 2025 open enrollment?). 2) Shift flex categories (travel/dining) down 5-10% to preserve savings rate. 3) If you’re holding lots of cash, consider a simple T‑bill ladder but don’t assume a full 5% “real” return, at 3%+ core, your real is closer to ~2%. 4) Build a rolling 90‑day CPI check into your sheet so you auto-update assumptions. Yeah, it’s annoying. Cheaper than finding out in January that groceries ate your cash buffer.

Q: What’s the difference between rolling 6‑month T‑bills and reaching out to 2‑year notes when core CPI is hovering in the low‑3s?

A: Per the article, short T‑bills are still around ~5% give or take. With core ~3%+, your real take-home on bills is ~1.5-2%. Rolling 6‑month bills: you keep flexibility if inflation cools and the Fed cuts later this year/early next, but you face reinvestment risk if yields fall. Going 2‑year: you lock a known nominal yield (often a bit lower than 6‑month), reduce reinvestment risk, but if inflation drops to the high‑2s your real improves and you’ll wish you’d waited to buy duration. My rule of thumb right now: ladder across 3, 6, 12, and 24 months; keep at least half inside 12 months while core stays sticky. If we see a sustained 3‑month annualized core in the mid‑2s, that’s my cue to add more 2‑year exposure.

Q: Is it better to stick with a 4% withdrawal rate or cut to 3.5% for 2026 if inflation doesn’t cool?

A: If you retired recently, I’d run 3.5-3.8% for 2026 unless you’ve got a fat margin of safety. Sticky services inflation plus sequence risk is a rough combo. Tactically: 1) Take withdrawals from cash/short bonds in quarters when equities are soft; 2) Trim discretionary by ~5% now, then true‑up mid‑2026; 3) Delay any big purchase 6-9 months; 4) Refill your 1-2 years of cash needs with T‑bills/short notes while yields are still solid. If markets rally into December, use that to rebalance and pre-fund 2026 withdrawals. Not glamorous, but it works, I’ve seen too many clients learn the hard way that 4% is a range, not a law.

Q: How do I use HSAs, I Bonds, and TIPS to protect my plan if inflation hangs around ~3%?

A: Three levers I like in Q4: 1) HSA: Max it for 2025 if you’re eligible (triple tax advantage). Invest the HSA, pay current medical costs from cash, and let the HSA compound as a stealth retirement medical fund. 2) Series I Bonds: Rate resets each May/Nov off CPI‑U. Use them for the 12-36 month bucket you don’t want in equities; remember the 1‑year lockup and 3‑month interest penalty if redeemed <5 years. 3) TIPS: Build a 3-7 year ladder for real spending needs, match maturities to known expenses (property taxes, tuition). In taxable accounts, consider a TIPS fund/ETF for simplicity and watch the real yield; buying when 5‑year TIPS real is north of ~1.8% has been a decent entry in my playbook. Bonus: do tax‑loss harvesting before Dec 31 and direct the proceeds into TIPS/I Bonds to harden the plan.

@article{august-cpi-what-it-means-for-fire-plans-and-stocks,
    title   = {August CPI: What It Means for FIRE Plans and Stocks},
    author  = {Beeri Sparks},
    year    = {2025},
    journal = {Bankpointe},
    url     = {https://bankpointe.com/articles/august-cpi-fire-stocks/}
}