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The consumer price index posted a seasonally adjusted 0.4% increase for the month, the biggest gain since January, putting the annual inflation rate at 2.9%.
The Labor Department reported a surprise increase in weekly unemployment compensation filings to a seasonally adjusted 263,000, the highest since October 2021.
The reports provide the final pieces of a complicated data puzzle that central bankers will review at their two-day policy meeting that concludes Sept. 17.
Vegetables on display in a grocery store on August 15, 2025 in Delray Beach, Florida.
Joe Raedle | Getty Images
Prices consumers pay for a variety of goods and services moved higher than expected in August while jobless claims accelerated, providing challenging economic signals for the Federal Reserve before its meeting next week.
The consumer price index posted a seasonally adjusted 0.4% increase for the month, the biggest gain since January, putting the annual inflation rate at 2.9%, up 0.2 percentage point from the prior month and the highest reading since January. Economists surveyed by Dow Jones had been looking for respective readings of 0.3% and 2.9%.
For the vital core reading that excludes food and energy, the August gain was 0.3%, putting the 12-month figure at 3.1%, both as forecast. Fed officials consider core to be a better gauge of long-run trends. The central bank’s inflation target is 2%.
On employment, the Labor Department reported a surprise increase in weekly unemployment compensation filings to a seasonally adjusted 263,000 for the week ending Sept. 6, higher than the 235,000 estimate and up 27,000 from the prior period. The claims level marked the highest in nearly four years.
The reports provide the final pieces of a complicated data puzzle that central bankers will review at their two-day policy meeting that concludes Sept. 17.
“Today’s CPI report has been trumped by the jobless claims report,” wrote 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, with Powell likely signaling a sequence of rate cuts is on the way.”
The closely watched CPI reading saw its biggest gain from a 0.4% increase in shelter costs, which account for about one-third of the weighting in the index. Food prices jumped 0.5% while energy was up 0.7% as gasoline rose 1.9%, likely indicating tariff impacts on prices.
Market pricing indicates a 100% certainty that the Fed will lower its benchmark interest rate, currently targeted between 4.25%-4.5%. However, there has been a slight implied chance that the Fed might choose to deviate from its usual quarter percentage point move and cut by half a point considering weakness in the labor market this year and subdued inflation readings.
Traders also moved the probability of another reduction in October to a near certainty and see a high likelihood of a third move in December.
Fed officials have been watching the inflation data closely for clues on the impact from President Donald Trump’s tariffs. There has been some visible pass-through from the duties, though inflation figures have been relatively well-behaved. The BLS reported Wednesday that producer prices actually declined 0.1% in August.
Tariff-sensitive vehicle prices saw monthly increases, with new vehicles up 0.3%. Used cars and trucks, which are generally not influenced by tariffs, rose 1%.
The Fed, though, is more focused on services costs as signals of underlying inflation. Historically, tariffs have been looked at as temporary boosts to the prices of goods but not a longer-term inflation driver.
Services prices excluding energy rose 0.3% in August and are up 3.6% on the year. Shelter also was up 3.6% annually and has been steadily declining through the year after peaking above 8% in early 2023.
If Fed officials had any doubt about cutting, the jobless claims report may have sealed the deal.
Initial filings hit their highest point since Oct. 23, 2021, an indication that employers may now be cutting back on their workforce. Though hiring has slowed through the year, layoffs also have been tame, indicating more status quo rather than a material weakening in what Chair Jerome Powell repeatedly has termed a “solid” labor market.
Continuing claims, which run a week behind, held unchanged at 1.94 million but have been running near their highest level since late-2021 as well. More
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The ECB is grappling with global economic uncertainty, despite inflation in the euro zone hovering around the central bank’s 2% target in recent months.
Markets were pricing in an around 99% chance of the ECB holding interest rates steady.
Based on economic expectations, the central bank “is in no hurry to reduce rates further,” said Thomas Pugh, chief economist at RSM UK and RSM Ireland.
The European Central Bank held interest rates steady on Thursday as economic uncertainty persists in the wake of U.S. Donald Trump’s aggressive tariff agenda.
Ahead of the decision, markets had been pricing in an around 99% chance of the ECB’s key deposit facility rate being left at 2% for the second consecutive time. The central bank last cut rates in June, bringing rates further down from last year’s record high of 4%.
“Inflation is currently at around the 2% medium-term target and the Governing Council’s assessment of the inflation outlook is broadly unchanged,” the ECB said in a statement.
The central bank added that it would follow a meeting-by-meeting, data-dependent approach and was not pre-committing to a specific path for interest rates. The ECB offered little indication on the future direction for rates.
Lingering economic uncertainty
The ECB is grappling with global economic uncertainty, despite inflation in the euro zone hovering around the central bank’s 2% target in recent months, and the EU striking a trade agreement with the U.S.
The transatlantic partners agreed to 15% blanket tariffs on EU exports to the U.S. in July, with further details about the framework emerging last month. It addressed some questions for key European sectors like pharmaceuticals.
However, questions remain as some issues — such as provisions for the wine and spirits sector — were left open. Concerns over further tariffs have also grown following Trump’s threat of retaliations against the EU after it hit Alphabet’s Google with a $3.45 billion antitrust fine.
Fears about the impact tariffs could have on economic growth remain. Growth in the euro zone has remained sluggish even as rates have come down, with the latest figures showing just 0.1% growth in the second quarter after a 0.6% expansion in the previous period.
Further cuts ahead?
The ECB has left the door open for further rate reductions, according to economists and analysts following the interest rate decision.
Based on economic expectations, the central bank “is in no hurry to reduce rates further,” said Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK and RSM Ireland.
But, he noted, “the 15% tariff on EU exports to the US along with heightened uncertainty will weigh on demand, potentially leaving the door open to a further rate cut at the end of the year.”
“A combination of a hit to investment and exports, a stronger euro along with cheaper imports from China could dampen growth and inflation by enough to warrant another rate cut later this year,” Pugh explained in a note.
Updated expectations
With the interest rate decision itself being widely anticipated, attention on Thursday focused on ECB President Christine Lagarde’s press conference and the latest projections for inflation and economic growth. The central bank last updated its economic forecasts in June.
“The new ECB staff projections present a picture of inflation similar to that projected in June. They see headline inflation averaging 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027,” the central bank said.
In June, headline inflation was forecast to average 2% this year, 1.6% next year and 2% in 2027.
So called core inflation, which strips out food and energy costs, is expected to average 2.4% this year, unchanged from the previous estimate.
Looking at economic growth, the ECB said that “the economy is projected to grow by 1.2% in 2025, revised up from the 0.9% expected in June.”
The forecast for 2026 was trimmed slightly to 1% growth. More
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