Inflation, as measured by the producer price index, ticked up six-tenths of a percentage point to 5.4% for the year ending in August, the Bureau of Labor Statistics reported Thursday.
The increase in inflation spells more pain ahead for businesses and families, and it complicates President Donald Trump’s efforts to improve his poor approval ratings with voters before the midterm elections.
Economists have been closely examining inflation reports because of the higher energy prices stemming from the war with Iran and fears that they will translate to higher overall inflation.
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The Federal Reserve has also been forced to recalibrate its monetary policy due to high inflation, and many expect the Fed to raise its interest rate target at its meeting next week in an effort to put downward pressure on prices.
The increase in inflation could lead Fed officials to favor tighter monetary policy. Inflation is still far higher than the central bank considers to be healthy.
On a month-to-month basis, the price index rose three-tenths of a percentage point to 0.4%.
Core PPI inflation, which strips out volatile food and energy prices, rose three-tenths of a percentage point to 4.6% on an annual basis. Core inflation fell slightly to 0.2% on a monthly basis.
“The No. 1 issue in the economy is inflation,” said Heather Long, chief economist at Navy Federal Credit Union. “The Federal Reserve is focused on it and so is Main Street. The August PPI came in about in line with expectations. The PPI excluding food and energy was a little softer than expected, but there is no great victory here. Costs are rising over 5% for businesses and over 3% for consumers. Eventually firms will pass more of those costs along to consumers.”
The latest inflation numbers come a day before the government is set to release the most closely watched inflation report, the consumer price index. Forecasters expect that inflation holds roughly steady in that gauge.
The bump in inflation since the start of 2026 has been driven in large part by higher energy prices, which have soared since the Iran war. Oil prices this week punched above $100 per barrel, showing that the fuel cost problems are certainly not in the rear-view mirror.
The Fed’s meeting next week will be of keen interest to investors and to Trump, who has been pushing — and even threatening — the central bank to cut rates.
Fed Chairman Kevin Warsh has struck a hawkish tone as of late, emphasizing that the Fed’s priority is to drive inflation back down to the 2% level that officials consider to be healthy for the economy.
The Fed also got a shot in the arm recently with a much stronger-than-anticipated jobs report, giving it more leeway to tighten monetary policy.
WHAT THE AUGUST JOBS REPORT SAYS ABOUT THE ECONOMY AND TRUMP
The economy added 162,000 new payroll jobs in August, the Bureau of Labor Statistics reported Friday, as businesses shrugged off the energy supply shock from the war with Iran.
The unemployment rate remained at a low 4.1%.
