US inflation rises in August as firms pass Trump tariffs cost on to consumers

Inflation in the US went up in August as businesses pushed the burden of Trump’s tariffs directly on consumers. The Consumer Price Index (CPI), which tracks everyday goods and services, showed prices rising 2.9% year-over-year — the sharpest increase since January.

The Core CPI, which excludes food and energy, remained stable at 3.1%. Even with the slight increase, Wall Street is still hopeful that the Federal Reserve will move ahead with an interest rate cut in its upcoming policy meeting.

At present, the federal funds rate is set between 4.25% and 5.50%. Investors expect a quarter-point cut, seeing it as a step to support the economy while controlling inflation.

Markets React as Inflation Slows

Stock markets climbed after the Producer Price Index (PPI) showed a slight decline in wholesale prices during August, following a steep rise in July. This gave traders confidence that inflation is still high but rising at a slower pace.

The Federal Reserve’s Challenge

For over a year, the Fed has avoided cutting rates, citing the instability caused by trade policies and immigration issues. Its main target is to bring inflation closer to 2%, a level last achieved in early 2021. Raising interest rates helps slow inflation but also risks hurting the jobs market.

During the Jackson Hole symposium, Fed Chair Jerome Powell noted that ongoing tariffs continue to push prices higher, while warning about weakness in employment. He emphasized that the risks of rising layoffs and unemployment are growing quickly.

Jobs Market Weakens

Fresh data released in August showed that earlier job growth numbers were revised down by about 258,000 for May and June. More concerning, June’s figures turned negative for the first time since December 2020. The unemployment rate edged up to 4.3%, the highest level in four years.

Economists believe uncertainty caused by Trump’s tariffs has made it harder for businesses to commit to hiring, while survey delays have created data gaps. Despite the White House blaming the Bureau of Labor Statistics, experts point to broader economic disruptions.

What’s Next?

The Federal Reserve will announce its decision on 17 September. If inflation shows signs of easing but the jobs market continues to weaken, a rate cut appears more likely. However, the Fed remains cautious, balancing between lowering inflation and avoiding a major economic slowdown.