U.S. inflation pressure heats up, CPI hits July high but fails to prevent Federal Reserve from cutting interest rates

According to the latest economic data, the US Consumer Price Index (CPI) in August showed a significant increase, with an annual growth rate of 2.9%, marking the largest rise since January. Although this data exceeded market expectations, it did not shake the Federal Reserve’s resolve to proceed with interest rate cuts next week, as ongoing weakness in the labor market continues to raise concerns among policymakers.

August US Consumer Prices Surge, Annual Growth Reaches 2.9%

Based on official data released on Thursday, after a modest 0.2% increase in July, US consumer prices in August jumped to 0.4%, with a noticeable acceleration in month-over-month growth. More notably, the cumulative increase over the past 12 months reached 2.9%, up from 2.7% in the previous month, indicating that inflationary pressures in the US are gradually intensifying. The release of this data has sparked market concerns about stagflation risk—the scenario where economic stagnation and rising prices occur simultaneously.

Weakening Labor Market Becomes a Priority for the Federal Reserve

Despite the warning signals from US inflation data, the Federal Reserve is expected to initiate rate cuts next week. The key factor influencing this policy stance is not the inflation data itself but recent signs of weakness in the labor market. When employment conditions face challenges, the central bank tends to prioritize stabilizing employment, even if it means temporarily tolerating higher inflation levels. This policy approach reflects the Fed’s balancing act between inflation control and employment support.

Trump’s Tariff Policies Gradually Implemented, Future Inflation Pressures May Intensify

The tariffs implemented comprehensively by President Trump are currently having a gradual impact on prices, but as businesses deplete their pre-tariff inventories, prices could accelerate significantly in the coming months. Recent data from business surveys have consistently indicated that price increases are imminent. Stephen Stanley, Chief Economist at Santander US Capital Markets, stated: “There is substantial evidence that more inflationary pressures related to tariffs are building up, although their full transmission may take several months to fully materialize.”

This means that US inflation faces dual pressures—current rising consumer prices and lagged effects from tariff policies. The Federal Reserve, in facing these challenges, must maintain a delicate balance between price stability and supporting employment.