The cost of goods and services for U.S. consumers continued to rise throughout August. According to the Bureau of Labor Statistics, inflation, a key metric that strips out volatile food and energy costs, rose more than analysts had anticipated. Many observers immediately interpreted this as a signal that the Federal Reserve is likely to implement an interest rate hike next week.
“America still has an inflation problem,” Heather Long, chief economist at Navy Federal Credit Union, wrote on X.
Even before energy costs began to climb again toward the end of the month, the BLS noted that “the index for gasoline rose 3.9 percent in August, accounting for over one third of the monthly all items increase.”
President Donald Trump began suggesting this week that it might take until November for gasoline prices to decline. “Right after the election, oil prices are going to be tumbling downward,” he told reporters Wednesday.
Meanwhile, the BLS reported that shelter costs grew by 0.3%, while food prices saw a 0.1% increase. The “food at home” category remained unchanged, whereas the “food away from home” index, which tracks restaurant and takeout meals, rose 0.3%. Over the past year, the overall food index has climbed 2.7%.
This data may already be outdated, however. By Friday, U.S. crude oil was trading near $100 per barrel, with international Brent crude reaching approximately $105 per barrel. These figures are roughly 20% higher than they were in mid-August.
Also on Friday, the national average price for diesel fuel reached $6 per gallon for the first time.
The report highlighted several other areas where consumers are facing financial pressure. Airline ticket prices increased 2.7% in August, and the index tracking communication costs rose 2.3%. The BLS also observed price hikes for education, as well as used cars and trucks.
Conversely, apparel prices remained largely steady, while the indexes for medical care and vehicle insurance saw declines.
“The upside surprise to core CPI in August means the Fed looks set to hike next week,” said Stephen Brown, Capital Economics’ chief North America economist.
In the immediate aftermath of the report, market expectations for a Fed rate hike climbed from under 70% to nearly 90%. The probability of a subsequent hike in October rose to almost 60%. The Federal Reserve is scheduled to hold its next policy meeting on Tuesday and Wednesday.
A rate increase could place additional strain on consumers already grappling with high prices and borrowing costs. On Thursday, the average 30-year fixed mortgage rate climbed above 7% following a surge in the 10-year Treasury yield. Additionally, the national average gas price remains more than 40% higher than it was before the United States and Israel began the Iran war on Feb. 28.
Adding to the burden on consumers, separate BLS data released Friday indicated that real average hourly earnings for U.S. workers fell by 0.1% between July and August. The agency noted that average hourly earnings have declined by 0.3% over the past year.
The report had little effect on bond yields, which had already risen earlier in the week. However, the stock market saw gains, with the S&P 500 climbing nearly 1% and the Nasdaq Composite rising 1.3%.
Inflation has not been limited to categories affected by rising energy costs. In June, Apple increased prices across several of its product lines. “The rapid expansion of AI data centers has created an extraordinary surge in demand for memory and storage,” the company stated at the time.
Those Apple price adjustments followed similar moves by Amazon, Nintendo, Xbox, and various computer manufacturers.
“We have never seen a component price increase this much, this quickly,” Apple added.
Friday’s report showed that the category tracking computer software, accessories, and related items has climbed 25.4% over the last year, marking its largest annual increase on record.
On Wednesday, Apple also raised prices on the majority of its iPhone models.
