Inflation picked up in August as gas prices jumped

(David Paul Morris/Bloomberg)

WASHINGTON — U.S. inflation accelerated in August as gas prices spiked in the wake of renewed fighting in the Middle East, underscoring the affordability challenges that are top of mind for many voters with midterm elections now just seven weeks away.

The consumer price index rose 3.4% last month compared with a year ago, the Labor Department said Friday, the same as in July. But on a monthly basis, inflation quickened, as costs jumped 0.4% from July to August, up from an increase of just 0.1% the previous month.

READ MORE: Wholesale prices spike in latest sign of stubborn inflation

The figures show that inflation remains stubbornly elevated, more than five years after prices first soared as the economy emerged from the COVID pandemic. Persistent inflation has presented a major challenge for the inflation fighters at the Federal Reserve and has soured many voters on the Trump administration’s economic track record.

Excluding the volatile food and energy categories, core prices were 2.4% higher in August than a year ago, down slightly from July's 2.5% and the third straight decline. But on a monthly basis, core prices rose 0.3% from July to August, the largest increase since April.

The larger-than-expected monthly increase in core prices will likely embolden those Fed officials who have pushed for the central bank to lift its benchmark interest rate at its meeting next week. Wall Street investors now see about 70% likelihood the Fed will increase rates Sept. 16, according to CME Fedwatch.

The Trump administration is seeking to counter voter concerns about high prices and rising interest rates as the midterm elections approach. President Donald Trump on Sept. 10 promised $5,000 payments to every American adult if the GOP keeps a majority in Congress, a move that would require congressional approval and could stoke inflation. And Treasury Secretary Scott Bessent has stepped up buybacks of Treasury bonds in an effort to keep longer-term interest rates lower. Yet on Sept. 10 the yield on the 10-year Treasury reached a nearly three-year high.

JUST IN: America still has an inflation problem. CPI inflation was 3.4% (y/y) in August. Core inflation came in at 2.4%.  

The big news is inflation rose 0.4% in the month of August alone (up from 0.1% in July).   
And "core inflation" (excluding food and energy) rose 0.3% in August… pic.twitter.com/bnOc4uXcuk

— Heather Long (@byHeatherLong) September 11, 2026

 Renewed fighting in the Middle East has pushed up energy costs, with the nationwide average cost of a gallon of gas on Sept. 11 jumping more than 7% from a month ago to $4.30.

Hotel room prices and airfares also rose last month while new and used cars got more expensive. Apparel and grocery prices were unchanged from July to August.

Inflation as one-time shock, or something more

Many economists and Federal Reserve officials have long considered higher gas prices one of several “one-time” shocks that are lifting inflation, along with tariffs and surging investment in AI data centers. For months, the hope has been that as the war against Iran wound down, and the effects of tariffs faded, inflation would grind lower.

Yet there are few signs of the Iran war cooling, and even Trump has said gas prices won't retreat until after the midterm elections in November. And while Trump's trade fight with Canada will impact a small number of imports, it is a reminder that tariffs remain a threat that could push up other costs.

“This is not one and done,” said Kathy Bostjancic, chief economist at Nationwide. “It's unclear when tensions in the Middle East are going to settle down. ... This seems like it could be a prolonged disruption.”

While core prices are rising more slowly than overall prices, more expensive oil and gas could spread through more of the economy. Pricier jet fuel will likely push up airfares, and more expensive diesel will raise shipping costs, which could make groceries and other goods shipped by truck more expensive. On Sept. 10, a wholesale price report showed a jump in chemical prices, likely a result of more expensive oil.

What will the Federal Reserve do?

Federal Reserve policymakers are split on whether to hike at a meeting next week, so much so that differences of a few hundredths of a percentage point in the Sept. 11 inflation report could determine whether the central bank boosts its benchmark interest rate or leaves it unchanged. The Fed, which is tasked with keeping inflation in check, typically lifts borrowing costs to slow spending and limit price increases.

Investors and analysts differ over whether the Fed will hike rates at their Sept. 15-16 meeting. Chair Kevin Warsh suggested he was leaning toward a rate hike in a high-profile speech two weeks ago, but he did not commit to doing so at a specific time.