In August, inflation rose as gasoline, food, and airfare prices surged, while the number of layoffs also increased. The energy index saw a 0.7% increase, driven by a notable 1.9% jump in gasoline prices, while year-over-year food inflation reached 3.2%, revealing persistent economic tensions in the country, according to Thursday’s report from the Bureau of Labor Statistics (BLS).
- On a month-over-month basis, inflation rose 0.4% after posting a 0.2% increase in July, while core inflation increased by 0.3%, the same level as the previous month.
- Year-over-year inflation performance in August
- Labor market continues to show negative figures
- Businesses feel the impact of tariffs and inflation
Core inflation, which excludes the volatile energy and food indexes, remained at 3.1%, in line with analysts’ expectations, as a sign of a gradual price increase increasingly evident as a result of President Donald Trump’s tariff policy and just days before the Federal Reserve’s (Fed) September meeting to reassess interest rates.
On a month-over-month basis, inflation rose 0.4% after posting a 0.2% increase in July, while core inflation increased by 0.3%, the same level as the previous month.
The shelter index rose 0.4% in August, confirming the upward trend that has kept this indicator as the main driver of monthly price increases across all items in recent months, according to the BLS. Food prices also increased by 0.5% in August, up from 0.3% the previous month. Both figures exceed the Federal Reserve’s 2% target.
The energy index rose 0.7%, following a 1.1% decline in July, driven by the 1.9% rebound in gasoline prices during the eighth month of the year.
Year-over-year inflation performance in August
On a year-over-year basis, energy increased 0.2% compared to the same month in 2024, while the food index rose 3.2% over the same period. Airfares, new vehicles, used cars and trucks, and apparel also saw price increases.
Meanwhile, healthcare, recreation, and communication indexes were among the few major categories that declined in August.
As the Federal Reserve (Fed) continues analyzing core inflation figures to make a key decision on monetary policy for its September meeting, alongside personal consumption expenditure price indexes, Gross Domestic Product (GDP), and unemployment data, also released by the BLS.
The Federal Open Market Committee (FOMC) will meet on September 16 and 17 to confirm an expected decision to cut interest rates for the first time this year, after keeping them steady in a range of 4.25% to 4.5% since the December 2024 cut, despite constant pressure from President Trump demanding a significant reduction.
However, authorities are expected to yield to pressure to reduce short-term interest rates from 4.3% to approximately 4.1%.
Labor market continues to show negative figures
Regarding the labor market, the number of layoffs also increased, and combined with persistent inflation, these are indicators contrary to what the Fed expected to proceed smoothly with rate cuts.
Hiring has slowed dramatically in recent months and was lower than previously estimated. Meanwhile, the unemployment rate rose slightly in August to 4.3%, though this figure is still considered low. At the same time, weekly unemployment benefit claims increased significantly, according to a report published Thursday, indicating that layoffs may be rising.
The number of people filing for unemployment benefits rose by 27,000, reaching a total of 263,000, the highest in nearly four years.
However, experts note that the rise in unemployment claims shook financial markets and makes it more likely the Fed will steadily reduce borrowing costs this year.
“Consumer inflation was slightly higher than expected, but not high enough to prevent the Fed from starting to cut rates next week,” said Kathy Bostjancic, chief economist at Nationwide. “The labor market is losing strength, reinforcing the idea that the Fed needs to begin cutting rates next week and that this will be the start of a series of rate reductions.”
Typically, the Fed would cut its key interest rate when unemployment rises to boost spending and growth. However, it would do the opposite—raise rates or at least keep them unchanged—in response to rising inflation. Last month, Fed Chair Jerome Powell indicated the agency is deeply concerned about employment figures. Yet, persistently high inflation could prevent the Fed from approving any cuts in the near term.
The inflation data comes as Trump has attempted to fire Federal Reserve Governor Lisa Cook as part of a systematic effort to take control of the agency, appointing allies to his administration. However, on Tuesday night, a court ruled the firing was illegal and ordered that Cook could keep her job while the dispute is resolved in court.
Businesses feel the impact of tariffs and inflation
Major companies are also feeling the impact of these economic indicators: ELF Cosmetics announced a $1 price increase this spring. However, last month, its CFO, Mandy Fields, stated it is no longer certain this measure will be enough to offset rising costs driven by tariffs.
Many other retailers and brands have not disclosed specific price increases, but several, like Home Depot and Macy’s, mention modest hikes or refer to a ‘surgical approach.’
Meanwhile, shoppers have yet to feel the severe blow economists predicted earlier this year after many retailers ordered products ahead of tariffs and chose to absorb much of the costs caused by tariffs rather than pass them on to increasingly price-sensitive consumers.
But Walmart and other major chains have warned about rising costs as they restock inventories, with the full impact of current tariffs now in effect.
Image: DiarioNY
