Inflation in the United States picked up pace in August, rising at the fastest rate since the start of the year, just days before the Federal Reserve meets to decide whether to cut interest rates.
The Labor Department reported Friday that consumer prices climbed 2.9% in the year to August, up from 2.7% in July. The increase was driven by higher costs for automobiles, household furnishings, and grocery staples such as tomatoes and beef.
The latest figures come as the Fed weighs the impact of President Donald Trump’s trade and immigration policies on the economy. The central bank has kept rates steady for nearly a year, even as Trump has repeatedly urged more aggressive cuts, accusing policymakers of acting too slowly compared with their counterparts in Europe and the UK.
Markets widely expect the Fed to trim rates by a quarter-point at its meeting next week. While the new inflation data is unlikely to block that move, analysts say it may keep officials cautious about the pace of further cuts.
“President Trump’s inflationary policies—tariffs and restrictive immigration measures—are gradually showing up in the hard data and continue to erode consumers’ purchasing power,” said Atakan Bakiskan, U.S. economist at Berenberg Bank.
Since Trump’s latest tariffs took effect last month, many imported goods face levies ranging from 10% to 50%. Prices for tariff-sensitive products, including clothing and household items, edged higher in August, suggesting more businesses are passing costs on to shoppers. Food prices also jumped, with tomato costs up 4.5% in a single month. The U.S. imposed a 17% tariff on Mexican tomatoes in July, even though about 70% of the supply comes from Mexico, according to the Florida Tomato Exchange.
Beyond inflation, concerns about the labor market are weighing heavily on policymakers. The Labor Department said employers added just 22,000 jobs in August, well below forecasts, while the unemployment rate rose to 4.3% from 4.2%. Earlier revisions revealed the economy had added 911,000 fewer jobs than previously estimated in the year through March. Meanwhile, weekly jobless claims jumped to 263,000—the highest level in nearly four years.
An underlying inflation measure, which strips out food and energy costs, held steady at 3.1% year-over-year.
“Right now, inflation is a key subplot, but the labor market is still the main story,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “That translates into a rate cut next week—and likely more to come.”
Trump has also directed criticism at the Bureau of Labor Statistics, which compiles inflation and jobs data. Last month he dismissed its chief, accusing her without evidence of manipulating figures. The Labor Department’s inspector general has since opened an investigation into the agency’s data collection methods.
