The consumer price index rose 0.4% in August, while the annual rate held at 3.4%.
The hotter print puts the Federal Reserve in a tougher spot ahead of next week’s policy vote, with households already facing higher fuel costs, tighter credit, and weaker wage growth.
Core prices, which exclude food and energy, climbed 0.3% for the month and 2.4% from a year earlier, with the monthly increase coming in above economists’ expectations.
Traders responded by pushing the implied odds of a September rate hike to nearly 90%.
“There’s no guarantee that the Fed will hike next week.”
Chris Zaccarelli, Northlight Asset Management
The Fed has kept its benchmark rate between 3.5% and 3.75% throughout 2026. Chair Kevin Warsh has signaled that further tightening remains on the table if inflation does not improve.
Energy prices are carrying the inflation risk
Much of August’s increase came from the gas pump. Gasoline accounted for more than one-third of the monthly CPI gain, rising 3.9% in August. Prices were 27.4% higher than a year earlier, while fuel oil surged 52%.
Other household expenses were more subdued. Food prices rose 0.1%, grocery prices were flat, and shelter costs increased 0.3%, snapping a brief stretch of cooler housing readings.
But the energy picture has worsened since the August data was collected. Diesel reached a national average of $6.06 on Friday, while Brent crude climbed above $100 as tensions around the Strait of Hormuz continued.
Those increases can travel quickly through the economy. Trucks and railroads depend on diesel to move goods across the country, raising the prospect of higher transportation costs eventually reaching businesses and consumers.
Goldman Sachs Asset Management’s Alexandra Wilson-Elizondo warned that the August survey did not capture the latest energy shock, leaving another potential source of price pressure for the months ahead.
The hit to consumers is spreading
Consumers are also paying more in several areas outside energy. Airline fares rose 2.7% in August, while communications prices increased 2.3%.
Used cars and trucks and education costs also moved higher, while apparel was flat and vehicle insurance and medical care declined.
Meanwhile, purchasing power slipped. Real average hourly earnings fell 0.1% from July and were down 0.3% from a year earlier after adjusting for inflation.
Financing a major purchase is becoming more expensive as well. The average 30-year fixed mortgage rate moved above 7% this week as Treasury yields climbed.
The Fed also has reason to look beyond the headline numbers. Supercore inflation, a services measure closely watched by policymakers, rose 0.5% in August.
Taken together, the numbers have made September look increasingly settled for markets. The bigger question is what happens afterward, particularly if the latest jump in energy costs begins working its way into transportation, services, and other prices.
For investors, the risk has shifted. The question is no longer how quickly rates can come down, but how much further they may have to go up.