U.S. consumer inflation unexpectedly heated up in August, driven by increased costs for housing and food. At the same time, new jobless claims surged to their highest level in nearly four years. This combination of rising inflation and a weakening labor market is leading to concerns about a possible period of stagflation. The price increases are believed to be partly a result of businesses passing on higher costs from tariffs and labor shortages.
Key Economic Indicators
- Consumer Price Index (CPI): The CPI rose by 0.4% in August, the largest monthly gain since January. The year-on-year inflation rate increased to 2.9%, the biggest jump since January.
- Core Inflation: The core CPI, which excludes volatile food and energy prices, also rose by 0.3%, bringing the year-on-year increase to 3.1%.
- Jobless Claims: First-time applications for state unemployment benefits jumped by 27,000 to a total of 263,000, the highest level since October 2021.
Federal Reserve’s Next Steps
Despite the hotter-than-expected inflation report, economists believe the Federal Reserve will proceed with a planned interest rate cut next Wednesday. The central bank is expected to lower its base rate by a quarter-percentage point. This decision is based on the deteriorating labor market conditions and the view that the inflation increase is tied to external factors, such as tariffs and supply chain issues.
