The latest inflation report shows prices held steady in August, but the ongoing conflict with Iran continues to push energy costs higher, keeping pressure on the Federal Reserve as it weighs its next interest rate move.
According to data released Friday by the Bureau of Labor Statistics, the consumer price index (CPI) climbed 0.4% last month and 3.4% over the past year – unchanged from July's annual rate. The figures aligned with expectations from the Cleveland Fed's Nowcast, which had projected a 0.4% monthly gain and a 3.4% year-over-year increase.
Gasoline prices were the primary driver, jumping 3.9% in August and accounting for more than a third of the overall monthly increase. Energy prices as a whole rose 2.1%. Excluding food and energy, core CPI advanced 0.3% for the month and 2.4% on an annual basis.
The inflation data lands just days before the Federal Reserve's policy meeting, where officials will decide whether to raise interest rates for the first time in over a year. As of Thursday afternoon, futures markets implied a nearly 70% probability of a quarter-point hike, according to the CME FedWatch tool.
Fed Chair Kevin Warsh has signaled a willingness to act if inflation remains stubbornly above the central bank's 2% target. Speaking at the annual retreat in Wyoming last month, Warsh said the labor market is performing well, but acknowledged that if underlying inflation is not moving toward the objective, the Fed has "work to do."
The strong August jobs report – which showed 162,000 new positions added and the unemployment rate steady at 4.1% – has given policymakers room to focus on combating price pressures. The BLS also revised June and July job gains upward by a combined 55,000, reinforcing the view that the economy can withstand tighter policy.
Annual CPI has now remained above 3% since March, shortly after the start of the Iran conflict, which has disrupted global oil markets and sent crude prices soaring. Brent crude was trading at roughly $107 per barrel on Thursday, while West Texas Intermediate hovered near $102.
President Trump, who has long pushed for lower rates, renewed his criticism of the Fed after the jobs report, threatening trade actions if the central bank does not cut. "The Fed Board, with its great new leader, must get smart – BE PATRIOTS for a change," he wrote on Truth Social. Vice President Vance echoed that sentiment, urging the Fed to reduce rates to help ease mortgage costs.
The Fed's preferred inflation gauge, the personal consumption expenditures (PCE) price index, showed prices up 3.7% year-over-year in July, still well above target. As the central bank weighs its decision, the possibility of a rate hike remains on the table, though the record gas prices hitting consumers could complicate the political fallout.
