Inflation Surges to 2.9% in August Amid Rising Jobless Claims: What It Means for the Fed’s Rate Decisions
Consumer Prices Rise at Annual Rate of 2.9% in August Amid Surge in Weekly Jobless Claims
Published: September 11, 2025 | Updated: 11 minutes ago
By Jeff Cox | @JeffCoxCNBCcom
A strong rise in prices shapes the current economy. The Consumer Price Index (CPI) climbed by 0.4% in August. This jump is the highest since January 2025. The annual rate now sits at 2.9%, a rise of 0.2 points since July. This value is the highest recorded since January this year.
Inflation Details: Core CPI and Key Contributors
Experts expected the monthly rise to near 0.3%. They guessed the yearly rate would stay at 2.9%. The core CPI, which drops food and energy costs, went up by 0.3% in August. This number lifts the 12-month rate to 3.1%. Fed officials see core numbers as a better sign of long-term trends.
The CPI rise came from several sources:
• Shelter costs grew by 0.4%. Shelter makes up about one-third of the CPI weight.
• Food prices moved up by 0.5%.
• Energy costs climbed by 0.7%. Gasoline prices jumped by 1.9%, which may be linked to recent tariff changes.
Employment Data Signals Rising Uncertainty
The Labor Department showed that weekly jobless claims grew to 263,000 for the week ending September 6. This seasonally adjusted number is above the expected 235,000. It is the highest level since October 2021. The steady figure of 1.94 million for continuing claims has not been seen since late 2021. Small layoffs marked the early part of the year, but the new claims show that some employers cut back on workers.
Market Reaction and Fed Outlook
Reports of higher-than-expected inflation pushed stocks up as traders adjusted their bets on Fed moves. Market talk now shows a 100% chance of a rate cut at the Fed’s meeting ending on September 17. Many now believe the cut will be by a half-point instead of the usual quarter-point, partly because labor data showed softness.
Seema Shah, Chief Global Strategist at Principal Asset Management, said:
"While the CPI report shows higher numbers than some thought, it will not slow the Fed as they plan a rate cut next week. The rise in jobless claims may push the Fed to act faster. Chair Powell could hint that we will see a series of rate cuts soon."
After the expected drop in September, many now see more cuts coming in October and December. This view comes from a growing belief that monetary policy will ease soon.
Tariffs and Inflation: A Look at the Impact
Fed officials have watched the numbers to see if tariffs affect prices. Some effects are visible in consumer prices, yet overall inflation stays low. In August, producer prices fell by 0.1% from the previous month. Prices for new vehicles, which feel tariff pressure, went up by 0.3%. In contrast, used cars and trucks, usually not hit by tariffs, increased by 1%. The Fed focuses more on service costs. Service prices, without energy, grew by 0.3% in August. Over the past year, service costs have jumped by 3.6%. Meanwhile, shelter cost growth eased from more than 8% in early 2023 to 3.6% now.
Conclusion
The new inflation and jobless claims data form a mixed picture for the economy. The rise in consumer prices, along with more jobless claims, makes the Fed work hard to balance measures. As the Fed meets later this month, these mixed signals will help set U.S. interest rates for the rest of 2025. —
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