Inflation Climbs to Highest Rate Since January 2025

Just days before next week’s FOMC meeting, at which the Fed is widely expected to cut rates for the first time since December 2024, the latest CPI report gave Fed officials a lot to think about this weekend. Headline inflation accelerated to the highest level since January last month, as food prices, especially import-heavy categories, edged up.

According to the Bureau of Labor Statistics, the Consumer Price Index for All Urban Consumers (CPI-U) increased 2.9 percent over the last 12 months before seasonal adjustment, up from 2.7 percent in June and July. On a monthly basis, prices edged up 0.4 percent with the indexes for shelter, food and gasoline accounting for two thirds of the monthly increase. Meanwhile core inflation, which excludes volatile food and energy prices, came in at 3.1 percent in August, up from 0.2 percent in July and also the highest reading since January.

The latest CPI report is further complicating the Fed’s decision, as weak labor market data and sticky inflation put the central bank’s dual mandate – price stability and maximum employment – in direct conflict. According to the CME FedWatch tool, markets are still expecting a rate cut next Wednesday, currently pricing in a zero percent chance of rates staying unchanged. Meanwhile some economists are warning that a rate cut at this time, when inflation is close to 3 percent and trending upwards, could set a dangerous precedent, putting the Fed’s long-established 2-percent inflation into question.