Inflation Remains Elevated as Diesel Prices Hit Record High - Newsweek

The latest inflation report from the Department of Labor has shown that prices continued to rise at a fast pace in August, with energy costs again fueling much of the increase and leaving a near-term rate cut by the Federal Reserve unlikely despite the wishes of President Donald Trump.

According to the latest Consumer Price Index (CPI), published Friday morning, prices rose 0.4 percent last month compared with 0.1 percent in July, as annual inflation remained stalled at 3.4 percent.

Similar to past reports, the Bureau of Labor Statistics (BLS), the agency which collects and publishes the figures, said that energy costs accounted for "over one third" of the overall increases in August. The nationwide average for gas prices stood at $4.30 as of Friday morning, according to AAA, up from around $3 before the Iran war began on February 28. Diesel, meanwhile, has climbed to over $6 in recent days, an all-time high.

Core inflation, which excludes the more volatile food and energy categories, rose to 0.3 percent from 0.2 percent, but edged down to 2.4 percent on a year-over-year basis.

The headline annual rate of 3.4 percent compares to 3 percent when Trump returned to office last January but is down from its recent peak of 4.2 percent in May. However, as the BLS notes, energy prices and the fallout from Middle East supply disruptions continue to weigh heavily on the numbers.

The agency notes that the overall energy index is up 16.3 percent in the 12 months which ended August, with energy commodities—gas, fuel oil, motor fuels—up 28 percent.

The food index increased 0.1 percent in August and has risen by 2.7 percent, slower than overall broader inflation, over the past year. Food at home like groceries is up 2.2 percent, though many food groups continue to see outsized gains.

Beef, which has for months led the food category in terms of price increases, fell by 0.6 percent between July and August. Trump last month unveiled plans to import 300,000 metric tons of foreign beef to ease domestic supply constraints—a record-low cattle herd, screwworm outbreaks, among others—which had pushed prices to an all-time high. The beef and veal index is up 5.9 percent over the past year.

But fuel costs remain the central focus among economists reacting to the release. Heather Long, chief economist at Navy Federal Credit Union, pointed to the 23.4 percent jump in airline fares, the 5.2 percent increase in hospital service costs and a 3.8 percent rise in electricity as evidence that the inflation issue now appeared “more widespread than just an energy shock.”

Following Friday’s report, the prospect of the Federal Open Market Committee (FOMC) and Chair Kevin Warsh delivering a rate cut has become even less likely.

Nine out of 12 committee members voted to keep rates unchanged at the last meeting in July, with the remainder opting for a quarter-point rate hike. The Fed’s new chairman has also outlined a strategy focused on rising prices and said during his keynote address at the Jackson Hole Economic Policy Symposium in August that the central bank might need to raise interest rates to help tame inflation.

Some have said Friday’s report increases the likelihood of the Fed raising interest rates at next week’s meeting—with inflation still stubbornly above its long-term target of 2 percent—despite the president expressing his desire for the U.S. to have the “lowest interest rates in the world.”

Last month, Trump said Warsh would “do what he has to do,” but called the prospect of higher rates “ridiculous.”

Vice President JD Vance, during a press briefing at the White House last week, said: “We believe that the Fed should be lowering interest rates. We’re doing a lot of things to try to keep those interest rates down, but it would be nice to have some help from the Federal Reserve.”

“Mr. Warsh’s boss would be furious if the Fed increases rates this close to the midterm elections,” the MIT economist Simon Johnson wrote on LinkedIn days earlier.

The Fed chair doesn't report to a traditional "boss," but instead operates as the head of an independent central bank within the government.

But other economists have suggested that these remarks will have the inverse effect, with Diane Swonk of KPMG last week writing on X that this made a rate hike more likely as Warsh and other members of the FOMC will be eager to avoid the bank being seen as bending to political pressure.

And most smart money appears to be on a quarter-point hike at next week’s meeting. Ahead of the report, the CME FedWatch tool, which uses 30-Day Fed Funds futures prices to calculate future moves, put the chances of a quarter-point hike at 69 percent. This rose to 85 percent following the CPI report.

Investor and commentator Peter Schiff wrote on X that if the Fed votes against hiking rates, this would be proof that its 2 percent goal is “a lie, not a target.”

“We are getting a rate hike at the September Fed meeting,” RSM US economist Joe Brusuelas wrote on X. “This is not what disinflation looks like [,] people.”

Contact Newsweek editors for this story: Daniel Orton and Anthony Murray.