US Inflation Picked Up on Gas Prices   09/11 08:27

   U.S. inflation accelerated last month as gas prices spiked in the wake of 
renewed fighting in the Middle East, underscoring the affordability challenges 
that are top of mind for many voters with midterm elections now just seven 
weeks away.

   WASHINGTON (AP) -- U.S. inflation accelerated last month as gas prices 
spiked in the wake of renewed fighting in the Middle East, underscoring the 
affordability challenges that are top of mind for many voters with midterm 
elections now just seven weeks away.

   The consumer price index rose 3.4% last month compared with a year ago, the 
Labor Department said Friday, the same as in July. But on a monthly basis, 
inflation quickened, as costs jumped 0.4% from July to August, up from an 
increase of just 0.1% the previous month.

   The figures show that inflation remains stubbornly elevated, more than five 
years after prices first soared as the economy emerged from the COVID pandemic. 
Persistent inflation has presented a major challenge for the inflation-fighters 
at the Federal Reserve and has soured many voters on the Trump administration's 
economic track record.

   Excluding the volatile food and energy categories, core prices were 2.4% 
higher in August than a year ago, down slightly from July's 2.5% and the third 
straight decline. But on a monthly basis, core prices rose 0.3% from July to 
August, the largest increase since April.

   The larger-than-expected monthly increase in core prices will likely 
embolden those Fed officials who have pushed for the central bank to lift its 
benchmark interest rate at its meeting next week. Wall Street investors now see 
about 70% likelihood the Fed will increase rates Sept. 16, according to CME 
Fedwatch.

   The Trump administration is seeking to counter voter concerns about high 
prices and rising interest rates as the midterm elections approach. President 
Donald Trump on Wednesday promised $5,000 payments to every American adult if 
the GOP keeps a majority in Congress, a move that would require congressional 
approval and could stoke inflation. And Treasury Secretary Scott Bessent has 
stepped up buybacks of Treasury bonds in an effort to keep longer-term interest 
rates lower. Yet on Thursday the yield on the 10-year Treasury reached a nearly 
three-year high.

   Renewed fighting in the Middle East has pushed up energy costs, with the 
nationwide average cost of a gallon of gas on Friday jumping more than 7% from 
a month ago to $4.30.

   Hotel room prices and airfares also rose last month while new and used cars 
got more expensive. Apparel and grocery prices were unchanged from July to 
August.

   Inflation as one-time shock, or something more

   Many economists and Federal Reserve officials have long considered higher 
gas prices one of several "one-time" shocks that are lifting inflation, along 
with tariffs and surging investment in AI data centers. For months, the hope 
has been that as the war against Iran wound down, and the effects of tariffs 
faded, inflation would grind lower.

   Yet there are few signs of the Iran war cooling, and even Trump has said gas 
prices won't retreat until after the midterm elections in November. And while 
Trump's trade fight with Canada will impact a small number of imports, it is a 
reminder that tariffs remain a threat that could push up other costs.

   "This is not one and done," said Kathy Bostjancic, chief economist at 
Nationwide. "It's unclear when tensions in the Middle East are going to settle 
down. ... This seems like it could be a prolonged disruption."

   While core prices are rising more slowly than overall prices, more expensive 
oil and gas could spread through more of the economy. Pricier jet fuel will 
likely push up airfares, and more expensive diesel will raise shipping costs, 
which could make groceries and other goods shipped by truck more expensive. On 
Thursday, a wholesale price report showed a jump in chemical prices, likely a 
result of more expensive oil.

   What will the Federal Reserve do?

   Federal Reserve policymakers are split on whether to hike at a meeting next 
week, so much so that differences of a few hundredths of a percentage point in 
Friday's inflation report could determine whether the central bank boosts its 
benchmark interest rate or leaves it unchanged. The Fed, which is tasked with 
keeping inflation in check, typically lifts borrowing costs to slow spending 
and limit price increases.

   Investors and analysts differ over whether the Fed will hike rates at their 
Sept. 15-16 meeting. Chair Kevin Warsh suggested he was leaning toward a rate 
hike in a high-profile speech two weeks ago, but he did not commit to doing so 
at a specific time.

   And last Thursday, Fed governor Christopher Waller, echoing some other Fed 
officials, suggested that if Friday's inflation report shows price increases 
cooling, then he would support keeping rates where they are. Waller is one of 
the 12 officials who vote on each Fed rate decision.

   Waller's heavy emphasis on August's figures has raised the stakes for 
Friday's report. If the monthly core figure rounds up to 0.3%, some Wall Street 
analysts expect the Fed would then hike rates. But if it rounded down to 0.2% 
or lower, then a hold could be more likely. If it is somewhere in between, it's 
not clear what the Fed may do. One analyst called such considerations 
"ludicrous precision."

   For his part, Warsh doesn't want to tip his hand about his next moves, which 
some economists say will make this kind of uncertainty more common before Fed 
meetings.