Consumer sentiment dropped to record lows earlier this summer as Americans said they were struggling to afford gas and groceries. Photograph: Brandon Bell/Getty ImagesView image in fullscreenConsumer sentiment dropped to record lows earlier this summer as Americans said they were struggling to afford gas and groceries. Photograph: Brandon Bell/Getty ImagesUS consumer prices stayed high in August as Iran war pushed energy costs upAnnualized inflation rate was 3.4%, same as July, and core inflation, which omits energy and food prices, was up to 2.4%
US consumer prices remained stubbornly high in August as the end of the ceasefire between the US and Iran pushed energy prices up, according to data from the US Bureau of Labor Statistics released on Friday.
The annualized inflation rate was 3.4%, the same as it was in July. The most recent peak was seen in May, when the inflation rate hit a three-year high at 4.2%. Core inflation, which strips out volatile energy and food prices, increased to 2.4% in August.
Despite dipping from its most recent peak, inflation remains above levels that were seen before the war in Iran, largely because of higher energy prices. On Friday, the cost of diesel, used for trucks, buses and trains, went up past $6 a gallon for the first time ever. Meanwhile, gas prices at the pump sat at an average of $4.29 a gallon, $1.10 higher than the average a year ago, according to AAA.
It’s a worrying sign for Republicans, who are on the ballot at a time when consumer sentiment has hit record lows and Americans say they are struggling to afford gas and groceries. Concerns over inflation have also bled into the US bond market, where the yields on some US treasurys have reached their highest points since the 2008 recession. Yet it’s unclear when relief will come.
Read moreThe White House is aware of what this could mean for the upcoming elections. On Wednesday night, Trump said Americans would get a $5,000 “dividend” if Republicans win a majority in the midterms, which critics said is akin to bribery.
One of the most direct ways the federal government can affect prices comes from the power of the US Federal Reserve, which sets the interest rates that have an effect on the price of loans, including mortgages, car payments and student debt.
The latest inflation report will be a key factor in the Fed’s decision to change interest rates or hold them steady at its board meeting next week. Either move could have heavy implications for the US economy.
In a social media post last week, Trump said the central bank “must get smart” and lower rates. “A STRONG COUNTRY MEANS A LOWER INTEREST RATE,” he declared.
But pressure to increase rates has been growing. At the Fed’s last board meeting in July, it voted 9-3 to maintain rates – the first time in a decade that three board members shared dissent over a policy decision.
Historically, raising interest rates helps to lower inflation – making investments more expensive slows the economy. Inflation reached 9.1%, a 40-year high, in 2022. After the Fed spent the next few years increasing interest rates, up to a range of 5.25%-5.5%, inflation went down to 2.3% in April 2025.
Interest rates now sit at a range of 3.5%-3.75%, two percentage points lower than where they were two years ago. With inflation back up, some Fed economists have said it might be time for higher interest rates.
Last week, Fed governor Christopher Waller said there was “considerable uncertainty about how military conflicts, trade policy, and artificial intelligence will affect prices and economic activity” and it might be appropriate to raise rates if inflation showed no signs of easing.
“If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level,” he said at a Reuters event. “But if inflation comes in hot, I would consider a rate hike.”
The Fed’s new chair, Kevin Warsh, has made it clear the central bank will combat inflation during his tenure and achieve price stability. During a closely watched speech in Jackson Hole, Wyoming, last month, Warsh said that underlying inflation trends had not “meaningfully improved” over the summer.
“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said.
