Consumer prices climbed faster than expected in August while jobless claims rose to their highest level in nearly four years, offering a mixed but ultimately dovish signal to the Federal Reserve ahead of its key policy meeting next week.
The Labor Department said Thursday that the Consumer Price Index (CPI) increased 0.4% on a seasonally adjusted basis from July, the largest monthly gain since January, lifting the annual inflation rate to 2.9% from 2.7%. Core CPI, which excludes food and energy, rose 0.3% on the month and 3.1% year-over-year, in line with expectations. The Fed targets 2% inflation as consistent with price stability.
But the surprise came from the labor market. Weekly jobless claims surged by 27,000 to 263,000, well above the Dow Jones estimate of 235,000 and the highest reading since October 2021. Continuing claims held at 1.94 million, near two-year highs.
"Today's CPI report has been trumped by the jobless claims report," said Seema Shah, chief global strategist at Principal Asset Management. "While the CPI report is a tad hotter than expected, it will not give the Fed a moment of hesitation when they announce a rate cut next week. If anything, the jump in jobless claims will inject a bit more urgency in the Fed's decision making."
Shelter costs - which account for roughly one-third of CPI - rose 0.4%, remaining the largest driver of inflation. Food prices climbed 0.5% and energy rose 0.7%, with gasoline up 1.9%, reflecting some pass-through from President Donald Trump's tariffs on imports.
Tariff-sensitive goods also saw increases: new vehicle prices rose 0.3%, while used cars and trucks climbed 1%. Coffee prices jumped 21.7% from a year ago, and furniture rose 4.7%, underscoring the impact of higher import duties.
Despite the uptick in prices, markets are fully pricing in a rate cut at the Fed's Sept. 17 meeting, with traders assigning a rising probability to a more aggressive half-point reduction. Additional cuts are now seen as likely in October and December as policymakers seek to stabilize a cooling labor market.
