- Friday Labor Dept. report finds prices rose at 3.4% annual rate in August
- On a monthly basis, cost of goods and services jumped 0.4%
- New data could push Fed to raise benchmark rates at next week's policy meeting
Persistent U.S. inflation, running above the Federal Reserve’s target annual rate of 2% for nearly 5-1/2 years now, showed no signs of easing in the latest reading from the Labor Department, possibly setting the table for the first interest rate hike by the U.S. central bank since 2023.
Friday’s Consumer Price Index Summary finds prices on consumer goods and services rose at an annual rate of 3.4% in August, matching July’s measure. More than one-third of a 0.4% month-over-month increase was driven by higher energy/fuel costs, according to the Labor Department’s latest assessment. Higher costs for food and housing-related expenses also contributed to the August uptick.
Core inflation, which strips out volatile food and energy prices, came in at 2.4% in August, down 0.1% from July’s annual rate. On a monthly basis, core inflation ticked up 0.3% from July to August.
August’s regional annual inflation reading for Mountain West states, which includes Utah, came in somewhat lower than the national measure at 3.1%, though prices jumped 0.8% on a monthly basis.
Even as inflation has moved up since the start of the Iran war earlier this year, the Federal Reserve’s policy making Open Market Committee hasn’t made an adjustment to the body’s benchmark interest rate since a series of cuts in its last three meetings of 2025.
In recent weeks, speculation has swirled around how the Fed would react as both sides of its dual mandate – maintaining price stability while nurturing maximum employment – were buffeted by disparate economic winds.
Alongside persistent inflation, the U.S. jobs market has been on an anemic arc for most of the year with, up until last month, average monthly job growth barely above 60,000 positions.
But a much-better-than-expected August jobs report, one that saw U.S. employers adding 162,000 to their roles, more than tripling most economists’ expectations, has now tipped the scales toward a Fed rate hike at its upcoming policy meeting next week.
Generally speaking, Federal Reserve rate cuts help spur economic activity by reducing the cost of debt, which can promote business activities like investment and hiring. Rate hikes, which increase the cost of consumer and commercial debt, quell spending and help slow down inflationary price increases.
“There’s no guarantee that the Fed will hike next week, but it’s hard to see how the central bank can justify leaving rates on hold,” Chris Zaccarelli, chief investment officer for Northlight Asset Management, told CNBC on Friday following the release of new federal inflation data.
Markets are now betting on a 90% chance of a rate hike at next week’s Fed policy meeting, according to CME FedWatch.
What’s going on with fuel prices?
Elevated prices of gas and diesel, driven by petroleum industry disruptions since the U.S. and Israel launched attacks on Iran in late February, have helped drive up the overall inflation rate and, as of Friday, any significant, near-term price relief appeared unlikely.
The average price of a gallon of regular across the country was $4.30 on Friday, according to AAA tracking, up 29 cents from a month ago and $1.10 per gallon more than this time last year. Utah drivers were seeing significantly higher rates at the pumps, with the state average coming in at $4.70 per gallon to end the work week. That’s 37 cents per gallon more than last month and $1.38 more than a year ago.
The cost of diesel fuel hit an all-time record on Friday at $6.06 per gallon, according to AAA data. The price of diesel, currently $2.30 per gallon more than a year ago, can have direct impacts on the cost of goods as it is the fuel that powers the transport and distribution of goods across the country and around the world.
“Not every day are new all-time records set, and this will be a particularly painful one for the economy that may not even be immediately felt, but record diesel prices will impact every cargo, shipment, every delivery Americans are taking, and are likely to reignite inflation up and down the supply chain,” said Patrick De Haan, head of petroleum analysis at GasBuddy, in a blog post. “And for now, it comes at a time of year when diesel prices also traditionally rise, adding more pain. I suggest Americans anticipate a costlier holiday season, as it appears diesel prices could continue climbing as geopolitical tensions continue to remain a main factor.”
Reports of Houthi militant attacks earlier this week on Saudi Arabia, combined with ongoing tensions in the Persian Gulf are limiting petroleum deliveries through two critical passageways, the Strait of Hormuz and the Red Sea. Ukrainian strikes on Russian processing facilities are also disrupting global fuel supply chains.
The combined impacts could help push crude oil prices above the $120 per barrel mark, and drive consumer prices even higher, according to a new forecast from banking giant Goldman Sachs, according to a report from CBS News.
Crude oil futures were hovering near $100 per barrel around midday on Friday, down slightly from a high of $108 earlier in the day.