US inflation holds at 3.4% as monthly price rises hit fastest pace since May
US consumer prices rose 3.4% in the year to August, unchanged from July and exactly in line with expectations, but the monthly increase of 0.4% was the sharpest since May, a sign the energy shock is starting to bite four days before a Federal Reserve decision markets expect will deliver a rate hike.
On Friday, American consumers faced record prices at the gas pump as the US Bureau of Labor Statistics reported that the annual inflation rate remained steady at 3.4%. Core inflation, which excludes food and energy costs, decelerated to 2.4% from 2.5%. Despite this, monthly inflation saw a significant surge, with prices surging 0.4% in August compared to 0.1% in July—a fourfold acceleration that marked the fastest pace in three months.
The annual rate remained flat due to the strong summer of 2025. Analysts were largely confident prior to the figures being released, with the CME's FedWatch tool estimating a 67.4% probability of a quarter-point increase at the September meeting, rising to 91.6% afterward. Fed Chair Jerome H. Warsh emphasized the need for confidence that underlying inflation is moving towards the 2% target, but the mixed data presented ambiguity.
Warsh also rejected forward guidance as a guiding practice and highlighted the economic strengthening, the consistent labor market, and the financial conditions not being restrictive. However, the energy sector was the primary driver of inflation, with crude oil prices surpassing $100 a barrel and diesel prices reaching an all-time high in the US.
This energy shock has left truckers and farmers paying around 63% more than a year ago, with the national average for a gallon of gasoline crossing $6 for the first time in the country's history.
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