The year-over-year inflation rate heated up to 2.9% in August, as expected.
That’s up from 2.7% in June and July and marks the highest rate since January.
On a month-over-month basiss, the consumer price index increased 0.4% between July and August, just above the 0.3% forecast and higher than July’s 0.2% rise.
Core CPI, which excludes volatile food and energy prices, rose 3.1% over the year in August, matching the 3.1% forecast and the previous rate. The core index rose 0.3% over the month, like it did in July, as expected.
The shelter index increased 0.4% from July to August and “was the largest factor in the all items monthly increase,” the Bureau of Labor Statistics said. Year-over-year, the index increased 3.6%, the lowest rate since October 2021.
There has been some evidence of tariffs’ impacts on inflation in the past few months, as companies begin passing costs to their consumers, but it could take time to see more effects.
Ernie Tedeschi, the director of economics at the Budget Lab at Yale, wrote on X that core goods had their strongest monthly price growth so far this year due to increases in apparel and used vehicles.
“Recent months making clear that tariffs are materially weighing on consumer prices,” Tedeschi wrote.
The US Court of Appeals for the Federal Circuit recently ruled that most of President Donald Trump’s tariffs were illegal, adding to an atmosphere of economic uncertainty. However, they will still be in place until at least mid-October, and the decision could be overturned by the Supreme Court.
The food index rose 3.2% over the year, the largest since October 2023. It rose 0.5% over the month. Food away from home had a larger year-over-year increase than food at home last month.
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Coffee had the largest year-over-year rise since 1997, and beef and veal had the largest since April 2022. The gas index rose 1.9% in August from July after it fell 2.2% previously. It fell 6.6% year over year.
While recent inflation rates have ticked up from the recent low of 2.3% in April, Federal Reserve Chair Jerome Powell said in August that “upside risks to inflation had diminished.”
A weaker labor market could lead the Fed to begin loosening monetary policy in the near future. “The unemployment rate had increased by almost a full percentage point, a development that historically has not occurred outside of recessions,” Powell said.
Traders and economists expect the Federal Reserve to make its first rate cut of 2025 next week to help stimulate the job market. Since the last rate decision, where rates were held steady for the fifth straight time, the Bureau of Labor Statistics has released two monthly employment situation reports, both of which showed job growth well below expectations. Together, they showed a cool job market with low but rising unemployment.
The preliminary benchmark nonfarm payroll revision out earlier this week reiterated the job market’s softness. Many major industries had added fewer jobs between April 2024 and this past March than previously reported.
CME FedWatch showed before the new inflation report a higher chance of a 25-basis-point cut than a supersized 50-basis-point cut based on traders, with a virtually zero chance of the Fed holding rates steady once again. Those chances were little changed after the report.
A survey from the New York Fed showed that median inflation expectations for the year ahead have been inching up a little. It was 3.2% in August, down from the spring peak of 3.6% but up from 3% in June.
