September 11, 2025 - US headline consumer inflation accelerated in August, with so-called core inflation reflecting the pass-through of higher costs prompted by President Donald Trump's tariffs.

The consumer price index (CPI) rose by a 2.9pc annual pace, after rising by 2.7pc in July, the Bureau of Labor Statistics (BLS) said Tuesday. The gain in August was above the 2.7pc median estimate of economists surveyed by Trading Economics.

Core inflation, which strips out volatile food and energy, rose at a 3.1pc annual pace in August, in line with analysts' estimates and matching the 3.1pc gain in July.

The CME's FedWatch tool, after the inflation report, showed a 90.8pc probability the Federal Reserve will cut its target rate by a quarter point at its next meeting next week, down from 91.1pc Wednesday, with 9.2pc odds of a half point cut. Fed policymakers have repeatedly said they will continue to monitor the effects of Trump's tariff and other policies after holding the target rate steady at 4.25-4.5pc since December 2024.

"Tariffs remain chiefly responsible for the upshift in the core CPI numbers," Pantheon Macroeconomics said in a note. "About one-third of the likely final boost to core goods prices from the tariffs has filtered through."

Recent weak employment numbers, along with sharp downward revisions, have made the Fed more attentive to the "downside risks" associated with the labor market as it seeks to balance its dual mandate of stable prices and maximum employment.

The energy index rose by an annual 0.2pc in August after falling by 1.6pc in July. The gasoline index fell by 6.6pc over the 12-month period through August after falling by 9.5pc in July. The food index rose by 3.2pc through August, up from 2.9pc in July. The shelter index rose by 3.6pc over the year.

Other indexes with notable increases over the past year were medical care, up 3.4pc, household furnishings and operations, up 3.9pc, and motor vehicle insurance, up 4.7pc.

Services less energy services, viewed as a core services measure, rose by 3.6pc in August, unchanged from the prior month.

On a monthly basis, the CPI rose by 0.4pc in August after a 2pc gain in July and a 0.3pc gain in June. Core prices rose by 0.3pc in August, matching its pace in July and the highest since January.