Inflation holds steady in August, per last official report before Fed decides on possible rate hike

The latest official report on the cost of living ahead of next week's Federal Reserve meeting, which will decide on a possible interest rate hike showed that inflation remained stable in August on a year-over-year basis, at 3.4%. On a month-over-month basis, the Consumer Price Index (CPI) rose to 0.4% in August, compared to 0.1% between June and July.

According to a report published by the Bureau of Labor Statistics (BLS), the main driver of the price increase was gas, which rose 3.9% last month, accounting for more than a third of the overall index's monthly increase. The energy index rose 2.1% during this period.

Core inflation rose 0.3% month-over-month

In addition, the housing index rose 0.3% in August, following a 0.1% increase in July. The food index rose 0.1% during the month, driven by the index for eating out, which rose 0.3%.

Core inflation, which excludes food and energy, rose 0.3%, compared with a 0.2% increase in July. Among the indices that rose over the month were those for communications, lodging away from home, airfares, education, and used cars and trucks. Conversely, the healthcare index and the motor vehicle insurance index were among the main indices that declined in August.

On a year-over-year basis, the overall index rose 3.4% in the 12 months ending in August, the same as in the 12 months ending one month earlier. Core inflation, however, improved by 0.1 percentage points compared to July, after rising 2.4% over the past year, compared to the 2.5% recorded in the 12 months ending in July. The energy index rose 16.3% in the 12 months ending in August. The food index shows a 2.7% increase compared to the previous year.

Tension over possible Fed rate hike despite Trump's opposition

The release of this highly anticipated and important report was preceded by significant tension, as if the data is perceived as negative, it could prompt the Fed to raise interest rates next week—a step the current chairman has already indicated he is willing to take if necessary.

It would be a major blow to Donald Trump just a few weeks before the midterm elections. A rate hike makes access to credit more expensive. The president has been campaigning tirelessly for lower interest rates, with the aim of making credit more affordable to stimulate the economy.

New surge in prices due to escalation in Middle East

However, the war against Iran has triggered a spike in inflation in the country. The public's patience is wearing thin, as is that of the monetary policy makers tasked with keeping annual price increases around the 2% target.

The beginning of September was marked by a new rise in gas prices, due in particular to the resumption of military hostilities between Washington and Tehran over the strategic Strait of Hormuz and the escalation of the conflict between Houthi rebels and Saudi Arabia.

Diesel, the fuel used in tractors and trucks in the United States, hit a new record high on Friday and surpassed the symbolic threshold of $6 per gallon, according to data from the American Automobile Association. Before the war began, the price was around $3.50.