US Inflation Edges Higher in August as Jobless Claims Reach Four-Year Peak

Published Date: September 12, 2025

Last Modified : September 27, 2025

U.S. consumer prices rose 0.4 percent in August, lifting annual inflation to 2.9 percent, while jobless claims hit 263,000, the highest in nearly four years. The data highlights tensions from tariffs and labor softening ahead of the Fed’s rate decision.

Written by: Archana N

Senior Writer & Content Strategist

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Edited by: GlimMarket Editorial

Editors, Writers & Reviewers

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Reviewd by: Dileep K Nair

Senior Editor & Expert Reviewer

The Labor Department reported on September 11 that consumer prices rose 0.4 percent in August, marking the biggest monthly increase since January and pushing the annual inflation rate to 2.9 percent from 2.7 percent in July. Core inflation, which strips out food and energy, climbed 0.3 percent for the month and 3.1 percent year over year, unchanged from the prior month. Shelter costs, a major component, went up 0.4 percent, while food prices advanced 0.5 percent, with supermarket prices jumping 0.6 percent. Gasoline added to the pressure, rising 1.9 percent.

These figures came in slightly above economist expectations of a 0.3 percent monthly gain and a 2.9 percent annual rise. Fruit and vegetable prices surged 1.6 percent, led by a 4.5 percent spike in tomatoes, while beef increased 2.7 percent and now stands 13.9 percent higher than a year ago. Coffee prices rose 3.6 percent, up 20.9 percent from last year. The data points to persistent pressures from supply chain issues and policy changes.

On the labor front, initial claims for unemployment benefits climbed 27,000 to 263,000 for the week ended September 6, the highest level since October 2021. The four-week moving average of claims, a smoother gauge, increased to 244,750. Continuing claims held steady at 1.939 million for the week ending August 30. Economists had anticipated a smaller rise to 240,000 claims. The uptick may reflect seasonal factors around Labor Day, along with a surge in applications from Texas tied to summer floods and possible errors in disaster aid filings.

This mixed picture emerged just days before the Federal Reserve’s policy meeting on September 17. Officials have signaled a likely quarter-point rate cut, but the combination of hotter inflation and softening job data complicates the outlook. Wall Street stocks ended higher on the news, the dollar weakened against major currencies, and Treasury yields dipped. Sung Won Sohn, an economics professor at Loyola Marymount University, said the September cut remains on track, but future moves hinge on balancing inflation risks against rising unemployment threats.

The reports underscore broader economic strains. Nonfarm payrolls for the year through March may have been overstated by 911,000 jobs, according to recent revisions, and August saw hiring nearly stall with losses in June for the first time in over four years. Food price gains also stem from labor shortages in agriculture due to tighter immigration rules and lingering effects from past droughts on beef supplies.

Tariffs and Weather Events Stoke Price Pressures as Hiring Slows

August’s inflation pickup traces back to a mix of policy decisions and external shocks that have built up over months. President Trump’s tariffs on imports, rolled out in March, continue to filter through supply chains, raising costs for goods that make up a large slice of the CPI basket.

Businesses had stockpiled inventory ahead of the levies, but those buffers are now depleting, leading to direct pass-throughs to consumers. Shelter inflation, which accounts for about a third of the index, has stayed elevated at 5.2 percent year over year, driven by persistent housing shortages and higher rents in urban areas.

Food costs reflect both domestic and global factors. The 0.5 percent monthly rise follows a flat July, with eggs up 2.1 percent due to avian flu outbreaks and beef pressures from reduced herd sizes after droughts in the Plains states.

Immigration restrictions have tightened farm labor, pushing wages higher and contributing to a 4.1 percent annual food inflation rate. Energy prices, meanwhile, rebounded as summer driving demand picked up and refinery maintenance wrapped up, though oil futures remain volatile amid geopolitical tensions.

Labor market signals point to a cooldown after years of tightness. The 263,000 jobless claims represent a 12 percent jump from the prior week, revised to 236,000. Texas alone saw unadjusted claims rise by over 15,000, linked to flood recovery in areas hit hard in July.

Broader revisions to payroll data suggest the economy added far fewer jobs than previously thought, with manufacturing and construction sectors showing outright declines. The unemployment rate ticked up to 4.3 percent in August, from 4.2 percent in July.

These developments fit into a pattern of moderating growth. GDP expanded at a 1.7 percent annualized pace in the first half of 2025, down from 2.4 percent expected earlier. The Atlanta Fed’s nowcast for the third quarter has slipped to 1.2 percent. Consumer spending, a key driver, held flat since late last year, the weakest stretch since the Great Recession.

Federal Reserve Chair Jerome Powell noted in Jackson Hole remarks last month that policy remains data-dependent, with risks tilted toward both higher prices and weaker employment.

Cost Burdens Fall on Households While Firms Cut Back on Hiring

Rising prices hit everyday budgets hard, especially for essentials that fill a larger share of lower-income spending. The 2.9 percent annual CPI gain means the average household faces about $1,200 more in yearly costs compared to last August, based on Bureau of Labor Statistics calculations.

Food-at-home prices, up 0.6 percent monthly, add roughly $50 to monthly grocery bills for a family of four. Gasoline at 1.9 percent higher erodes commuting budgets, particularly in suburban and rural areas where public transit options are limited.

Borrowers feel the pinch too. With core inflation at 3.1 percent, real wage growth stays subdued at 0.8 percent for the year, leaving less room after bills. Mortgage rates, hovering near 6.5 percent, keep homeownership out of reach for many, while auto loans average 7.2 percent amid higher vehicle prices tied to tariffs. Credit card debt topped $1.1 trillion in the second quarter, per Federal Reserve data, as families tap savings to cover gaps.

Small businesses, often squeezed between rising inputs and cautious customers, report tighter margins. Tariffs have boosted import costs by 10 to 20 percent for retailers and manufacturers, according to National Federation of Independent Business surveys. August’s NFIB optimism index fell to a two-year low, with 44 percent of owners citing capital access as a barrier amid bank lending pullbacks. Hiring intentions dropped, with net job creation plans at negative 2 percent, reflecting the claims surge.

Investors navigated volatility as the data landed. The S&P 500 gained 1.1 percent on September 11, buoyed by expectations of Fed easing, but bond markets showed jitters with the 10-year Treasury yield falling to 3.8 percent. Cyclical sectors like industrials dipped on labor worries, while defensive plays in utilities rose. Retirement accounts tied to equities could see swings if stagflation fears take hold, with Goldman Sachs estimating a 10 percent drawdown risk in portfolios over the next six months.

From GlimMarket’s view, these crosscurrents risk a feedback loop: Higher costs curb spending, which in turn prompts more layoffs in consumer-facing industries.

Table: Consumer Price Index (CPI) Comparison

Metric	August 2025 Monthly Change	Year-over-Year Change	Previous Month (July 2025)
Overall CPI	+0.4%	+2.9%	+0.3% / +2.7%
Core CPI (ex-food & energy)	+0.3%	+3.1%	+0.3% / +3.1%
Shelter	+0.4%	+5.2%	+0.4% / +5.2%
Food	+0.5%	+4.1%	0.0% / +3.8%
Gasoline	+1.9%	N/A	-1.2% / N/A

Note: Data sourced from the U.S. Bureau of Labor Statistics Consumer Price Index Summary for August 2025. Year-over-year for gasoline not directly comparable due to volatility.

>> Also Read: Trump’s 2025 Plan to Reshape Public Service Loan Forgiveness and Its Impact on Borrowers

Fed Policy Crossroads: Balancing Price Stability Against Job Losses

The fresh data lands at a pivotal moment for the Federal Reserve, which convenes September 17 to 18. Markets now see a 95 percent chance of a 25 basis-point cut, up from 85 percent a week ago, with two more cuts priced in by year-end. Yet the inflation rebound tempers aggressive easing.

Core PCE, the Fed’s preferred gauge, likely rose 0.2 percent in August, pushing the annual rate to 3.1 percent from 2.9 percent. This keeps the central bank above its 2 percent target, with projections for 2.8 percent by end-2025.

Economists split on the path forward. Sarah House at Wells Fargo expects goods inflation to stay firm through early 2026 due to tariffs, but services prices may moderate as unemployment climbs and consumers shop selectively. Inflation expectations remain anchored around 2.5 percent, per University of Michigan surveys, offering some comfort. Still, a repeat of 1970s-style stagflation looms if growth stalls below 1 percent while prices hover near 3 percent.

Labor indicators suggest the neutral rate of unemployment may have risen to 4.5 percent from 4 percent pre-pandemic, limiting how far the Fed can cut without overheating. Continuing claims at 1.939 million signal longer job searches, particularly in goods-producing sectors where 200,000 positions vanished this year. If claims average above 250,000 for another month, payroll revisions could shave another 100,000 from estimates.

Broader risks include global spillovers. China’s economic slowdown and Europe’s stagnation could trim U.S. exports by 0.5 percent of GDP in 2026, per IMF forecasts. Domestic fiscal cuts under the Department of Government Efficiency initiative have already trimmed federal jobs, adding to private-sector weakness.

GlimMarket analysts see the Fed opting for measured steps: 50 basis points total this year, followed by pauses in 2026 if tariffs expand. Without policy tweaks on trade or immigration, the labor market could weaken further, with unemployment hitting 4.8 percent by mid-year. This setup recalls early 2008 signals, but with inflation as the wildcard, the path to soft landing grows narrower.

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Disclaimer

This article draws from public reports on U.S. inflation and labor data as of September 12, 2025, including Bureau of Labor Statistics and Department of Labor releases. We mainly depend on credible news sources as the basis of the news. Necessary attributions are provided in the news content itself and source links are already provided in the citation. GlimMarket maintains no financial ties to the entities covered and provides no investment advice or policy views. Economic figures can revise; readers should check primary sources and seek professional guidance for decisions.

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