Consumer prices rose at a 3.4% annual rate in August, the same pace as July, according to the latest Consumer Price Index from the Bureau of Labor Statistics. On a monthly basis, prices increased 0.4%, up from July’s 0.1% rise. Gasoline prices climbed 3.9% and accounted for a third of the monthly increase. The numbers land where ordinary people live: at the pump, in the checkout line, and in the monthly bills that never stop arriving.
Who Pays for the Price Hike
Core inflation, which excludes food and energy, rose 2.4% in the 12 months ending in August, down from 2.5% in July, and rose 0.3% on a monthly basis. But the broader picture stayed ugly. The report showed price increases beyond fuel, including computer software and accessory prices, which rose 25.4% in the 12 months ended in August, the largest annual price increase recorded. Computers and smart home assistants cost 8.4% more than a year earlier, while smartphone prices were down 12.2%. Prices also rose for rental cars, vehicle maintenance, day care and preschool, nursing homes and in-home care.
Diane Swonk, chief economist at KPMG Economics, tied the rising cost of eldercare and childcare to shortages of immigrant workers in the care economy. She wrote that “Some 330,000 Haitians lost their Temporary Protected Status at the end of July; about 200,000 were workers. More than half were estimated to be working in the care economy.” That’s the hierarchy in plain sight. Policy decisions at the top ripple downward until care work gets scarcer, more expensive, and harder to find for the people who need it.
The Fed’s Next Move
The report strengthened expectations that the Federal Reserve will raise rates at its meeting next week. After the release, traders boosted the odds of a rate hike to 90% from 70% the day before, according to CME FedWatch. Fed officials are set to meet Tuesday and Wednesday next week to decide their next move on interest rates. The market was also looking for a higher open, with the S&P 500 and Nasdaq seen trying to break a four-session losing streak. Bond yields were flat but remained elevated, while oil was lower even as WTI stayed near $100 a barrel and Brent at $104.
Fed Chairman Kevin Warsh, who has been reluctant to broadcast his views on interest rate decisions before policy meetings, has hinted at the possibility of a rate increase. At the Fed’s annual Jackson Hole conference last month, he said that if inflation isn’t showing signs of improvement, central bankers will “have work to do.” Fed Governor Christopher Waller said earlier this month that he would consider hiking rates at next week’s meeting if the August inflation data didn’t show signs of improvement. “It may not take much acceleration in inflation to nudge me into supporting tighter policy,” he said.
That’s the language of the apparatus: tighter policy, higher rates, more pressure from above. The people who’ll feel it first won’t be the ones speaking in conference rooms.
Sentiment Drops, Costs Keep Rising
The inflation data came as Americans’ consumer sentiment weakened. The University of Michigan’s consumer sentiment survey showed a sharp 7.5% drop early this month, marking the second-lowest reading recorded since the gauge began more than 70 years ago. Joanne Hsu, the surveys director, said Friday, “With a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.”
Olu Sonola, head of US economics at Fitch Ratings, said in a note Friday that “The breadth of the price pressures makes the report especially difficult to dismiss. This is not simply an energy story; underlying inflation remains elevated across a wide range of categories,” and said the report cements the case for a hike. Mike Skordeles, head of US economics at Truist Advisory Services, told CNN he’s not convinced a hike is necessary or productive. “The combination of higher energy prices and higher rates could slow the economy much more than a casual ‘tap on the brakes’ that a quarter-point rate hike would imply,” he said, noting that job growth has been inconsistent.
Corporate America, meanwhile, has had some protection from rising transportation costs because large companies often negotiate longer-term contracts with carriers. General Mills CEO Jeffrey Harmening said Wednesday that the company’s logistics costs were up 40% from a year earlier, but that it does not pay the spot rate on all of its freight and probably pays it on about 7% of freight. He said the company’s key input costs, including wheat, are covered for the next six to nine months. Tractor Supply CEO Hal Lawton said his company is putting two-thirds of its anticipated tariff refund of $100 million to $150 million toward covering freight and incremental fuel costs, with the other third used to keep prices lower than they otherwise would have been. Several CEOs have warned investors that the benefit of tariff refunds will fade.
The inflation report also carried political implications. Reuters said inflation frustration has effects on President Trump’s approval ratings and could influence congressional outcomes. That’s the reform trap in one neat package: voters get told to wait for the next election while the same institutions keep setting prices, rates, and the terms of survival.