U.S. inflation saw an uptick last month, driven by increases in gas, groceries, hotel accommodations, airfare, clothing, and used car prices. Consumer prices surged by 2.9% in August compared to the previous year, as reported by the Labor Department on Tuesday, marking the largest rise since January. Core prices, excluding food and energy, also climbed by 3.1%, mirroring July’s increase and surpassing the Federal Reserve’s target of 2%.
Ahead of its imminent key meeting, the Federal Reserve is anticipated to lower the short-term rate from 4.3% to approximately 4.1%, with the latest inflation data being the final input before the meeting. Despite the pressure from President Donald Trump to reduce rates, the recent figures highlight the Fed’s dilemma in the face of mounting inflation.
In addition to the inflation surge, recent government data revealed a significant slowdown in hiring over recent months and downward revisions to last year’s employment estimates. August witnessed a slight rise in the unemployment rate to 4.3%, while weekly unemployment claims surged, suggesting a possible uptick in layoffs.
Traditionally, the Fed adjusts its key rate in response to changes in unemployment and inflation levels. Fed Chair Jerome Powell indicated increasing concerns about employment, hinting at a rate cut in the upcoming meeting. However, persistent high inflation levels may hinder swift rate cuts by the Fed.
Month-on-month, inflation accelerated in August, with a 0.4% increase compared to July, outpacing the 0.2% growth in the previous month. Core prices also rose by 0.3% for the second consecutive month. The inflation report coincides with President Trump’s attempt to dismiss Fed governor Lisa Cook, a move deemed illegal by a court ruling on Tuesday, allowing Cook to retain her position during the legal proceedings.