U.S. consumer prices increased more than expected in August, with annual inflation reaching its highest level in seven months.
Despite the uptick, the Federal Reserve is still widely expected to cut interest rates at its upcoming meeting, due to signs of labor market weakness.
Inflation data for august
The Consumer Price Index (CPI) rose by 0.4% in August, following a 0.2% increase in July, according to data from the Bureau of Labor Statistics.
On a year-over-year basis, CPI climbed 2.9%, the largest annual gain since January. Economists surveyed by Reuters had predicted a 0.3% monthly rise and a 2.9% annual increase.
Stagflation concerns emerge
Recent reports have raised concerns about potential stagflation, as labor market data has been weaker and the effect of President Donald Trump’s tariffs on prices is still filtering through the economy.
Business inventories built up before the tariffs have now been depleted, and surveys indicate that further price increases could be coming.
Stephen Stanley, chief economist at Santander U.S. Capital Markets, commented:
“The evidence is overwhelming that more tariff-related inflation is coming, though it may still be several months before it passes through fully.”
Core inflation and fed outlook
Excluding food and energy, core CPI rose 0.3% in August, matching July’s gain.
Annually, core CPI was up 3.1%. The Federal Reserve, which targets a 2% inflation rate using the Personal Consumption Expenditures (PCE) index, is expected to reduce rates by 0.25 percentage points next week.
The central bank paused its easing cycle in January due to uncertainty about inflation from import duties.
Broader economic implications
Prior to the release, economists estimated core PCE inflation would also show a 0.3% monthly increase, translating to a 3.1% annual rise.
As inflation persists, the Fed’s next moves remain closely watched by markets.
