U.S. consumer prices rose faster than expected in August, while weekly jobless claims accelerated sharply, presenting the Federal Reserve with a mixed and politically sensitive economic picture just days before policymakers meet to decide the future path of interest rates.
The consumer price index (CPI) climbed 0.4% on a seasonally adjusted basis, double July’s increase, according to the Bureau of Labor Statistics. That lifted the annual inflation rate to 2.9%, a 0.2 percentage point rise from the prior month and the highest reading since January. Economists surveyed by Dow Jones had expected a slightly softer 0.3% monthly increase, with the year-on-year figure landing exactly at 2.9%.
The closely watched core CPI, which strips out food and energy, rose 0.3% on the month, in line with expectations. On a 12-month basis, core inflation held at 3.1%, still above the Fed’s 2% target. Central bankers generally consider the core index a more reliable gauge of long-term inflation trends.
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Labor Market Weakness Emerges
On the employment front, the Labor Department reported a surprise increase in weekly jobless claims. New filings for unemployment benefits jumped to 263,000 in the week ending Sept. 6, well above the 235,000 estimate and up 27,000 from the previous period.
The data reinforced signs of labor market cooling in recent months, with several measures — including job openings and hiring activity — trending downward. The Fed has been balancing the need to keep inflation in check while preventing further cracks from appearing in the job market.
Inflation Drivers
Within the CPI, the largest upward push came from shelter costs, which rose 0.4% and account for nearly one-third of the overall index. Food prices climbed 0.5%, while energy rose 0.7%, driven by a 1.9% increase in gasoline.
Tariff-sensitive sectors also registered higher prices: new vehicles rose 0.3%, while used cars and trucks — generally not affected by tariffs — gained 1%.
The results arrived as the Bureau of Labor Statistics separately reported that producer prices slipped 0.1% in August, suggesting some relief in the pipeline for future consumer price pressures.
Fed’s Next Move
Markets are fully pricing in a rate cut next week, with investors assigning a 100% probability that the Fed will lower its benchmark federal funds rate from the current 4.25%–4.5% range.
However, the size of the cut is now being closely debated. While the Fed has typically moved in quarter-point increments, traders see a slight chance that policymakers could opt for a larger half-point reduction, given signs of labor market weakness and relatively tame inflation readings over the summer.
The meeting, set to conclude on Sept. 17, is likely to be one of the most consequential of the year, balancing the Fed’s dual mandate of price stability and maximum employment against the backdrop of President Donald Trump’s tariffs, which have added complexity to inflation dynamics. Fed officials have acknowledged that while tariffs have created “visible pass-through” effects, inflation overall has remained more contained than some had feared.
The August inflation and unemployment reports represent the final major data inputs before the Fed convenes. They also feed into a wider debate about the durability of U.S. economic resilience.
After a year of relative stability in prices, the uptick in CPI, combined with rising unemployment claims, underscores the fragile balance between growth and stability. For Trump, who has championed tariffs as a tool to bolster U.S. industry, the numbers come as evidence of the economic trade-offs his policies continue to generate.