U.S. consumers faced a fresh surge in prices last month as inflation climbed to 2.9% in August 2025 compared to a year ago, marking an uptick from July’s 2.7% rate and the highest annual rise since January, according to the latest reports from the U.S. Bureau of Labor Statistics and the Labor Department. The increase, which met economists’ expectations, is complicating the Federal Reserve’s already fraught decision over whether to cut interest rates at its upcoming meeting, as persistent price pressures clash with a weakening labor market.
On a monthly basis, prices rose 0.4% from July to August, the largest jump since December 2024. Core inflation, which strips out the volatile food and energy categories, held steady at 3.1% for the second consecutive month—well above the Fed’s 2% target. The data not only confirms that inflation remains stubbornly high but also arrives at a time when the job market is showing unmistakable signs of strain.
Housing costs played a leading role in the overall price hike, climbing 0.4% in August and accounting for the largest share of the increase. Food prices went up by 0.5%, with grocery costs specifically rising 0.6%, driven by more expensive tomatoes, apples, and beef. Energy costs, meanwhile, jumped 0.7%. Gas prices alone soared 1.9% over the month, their biggest single-month increase since December, while airfares spiked by 5.9% and hotel room rates by 2.3%. Clothing, furniture, and appliances also saw modest but notable increases.
Egg prices, long a symbol of inflation’s reach, remained flat in August but are still nearly 11% higher than a year ago. Coffee prices, on the other hand, have surged 20% over the past year. Furniture costs have climbed 4.7% compared to last August, and beef prices are up 7%. Even more dramatic are the increases in certain imported goods, with chocolate and spices reportedly up by as much as 300% and 100%, respectively, according to restaurant owners feeling the pinch.
“Those are things that I cannot source locally, we do source a lot of produce and meat and everything else from local farmers, but I don’t know any nutmeg growers in North Carolina,” said Cheetie Kumar, owner of Ajja in Raleigh, North Carolina, to The Associated Press. She noted her overall costs have risen about 10% from a year ago, forcing her to raise menu prices by $1 or $2, though she’s hesitant to go further for fear of losing customers.
Major retailers and brands are also grappling with the impact. E.L.F. Cosmetics raised prices by $1 this spring, but Chief Financial Officer Mandy Fields recently admitted it’s unclear whether these increases will be enough to offset higher tariff costs. Home Depot and Macy’s have described their price hikes as modest or “surgical,” while Walmart and other chains have warned of further cost increases as they replenish inventories now subject to the full force of tariffs.
President Donald Trump’s sweeping tariffs have played a role in driving up the cost of many imported goods, including clothing, furniture, and appliances. While analysts told ABC News that tariffs have only modestly contributed to the overall inflation uptick, the bulk of price increases are still tied to housing and food products. Nonetheless, the tariffs’ effects are increasingly visible in certain categories, and economists warn that as retailers exhaust pre-tariff inventories, consumers may soon feel a sharper sting.
The inflation report comes at a precarious moment for the U.S. economy, with the labor market showing signs of faltering. The unemployment rate ticked up to 4.3% in August, and the number of people seeking unemployment benefits jumped by 27,000 to 263,000—the highest level in nearly four years. These weekly claims are considered a reliable proxy for layoffs and suggest that job losses may be picking up. Meanwhile, a recent revision of hiring data revealed that the U.S. economy added far fewer jobs in 2024 and early 2025 than previously estimated, deepening concerns about the nation’s economic health.
“Consumer inflation came in mildly hotter than forecast, but not nearly high enough to prevent the Fed from starting to cut rates next week,” said Kathy Bostjancic, chief economist for Nationwide, as quoted by The Blueprint. She added, “The labor market is losing steam and reinforces that the Fed needs to start cutting rates next week and that it will be the start of a series of rate reductions.”
The Federal Reserve, led by Chair Jerome Powell, now faces a delicate balancing act. On one hand, cutting interest rates could help stimulate growth and counteract rising unemployment. On the other, lower borrowing costs risk fueling further inflation. Powell has recently signaled that Fed officials are increasingly concerned about weaker hiring, setting the stage for a likely rate cut at the upcoming two-day meeting beginning September 16, 2025. Investors currently peg the chances of a quarter-point rate cut at about 90%, with a half-point cut seen as far less likely.
The situation has been further complicated by political pressure. President Trump has persistently urged the Fed to cut rates and recently attempted to fire Fed governor Lisa Cook as part of a broader effort to assert more control over the central bank. However, a court ruled the firing illegal in early September, allowing Cook to keep her position while the legal dispute plays out.
Meanwhile, Trump also fired Bureau of Labor Statistics Commissioner Erika McEntarfer last month in the wake of a disappointing jobs report, claiming without evidence that she manipulated statistics for political reasons. McEntarfer, a Biden appointee with two decades of federal service, responded on social media, “It has been the honor of my life to serve as Commissioner of BLS alongside the many dedicated civil servants tasked with measuring a vast and dynamic economy. It is vital and important work and I thank them for their service to this nation.” William Beach, a former Trump-appointed BLS commissioner, condemned the firing as “totally groundless” and warned it “sets a dangerous precedent and undermines the statistical mission of the Bureau.”
Economists are now debating whether the U.S. is facing a bout of “stagflation”—a combination of slow growth, rising unemployment, and persistent inflation not seen since the 1970s. Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, told The Associated Press, “Right now, inflation is a key subplot, but the labor market is still the main story.” Some, like Subadra Rajappa of Societe Generale, see signs that outside of tariffs, prices are cooling, while others, such as Joe Brusuelas of RSM, caution that higher-income households may continue to push up prices in travel and hospitality, keeping inflation stubbornly high even as the job market weakens.
As the Federal Reserve prepares to announce its widely anticipated rate decision, the path forward remains uncertain. Policymakers must weigh the risks of stoking inflation against the dangers of a labor market losing steam—a dilemma with no easy answers as economic and political pressures mount on all sides.
The coming weeks will reveal whether the Fed’s move can steady the ship or if Americans should brace for more turbulence in the months ahead.
