Rising inflation and a deteriorating job market puts the Fed and Americans in a difficult spot

WASHINGTON AP Inflation rose last month as the price of gas groceries and airfares jumped while new figures established applications for unemployment aid soared putting the Federal Reserve in an increasingly tough spot as it prepares to cut rates at its meeting next week despite persistent price pressures Consumer prices increased in August from a year earlier the Labor Department revealed Thursday up from the previous month and the biggest jump since January Excluding the volatile food and force categories core prices rose the same as in July Both figures are above the Federal Reserve s target A separate establishment account Thursday presented that weekly applications for unemployment aid jumped to the highest in nearly four years Requests for jobless benefits are a proxy for layoffs Latest reports have also proved that hiring has weakened dramatically this year and was lower than previously estimated last year The statistics raises the specter of stagflation a trend that last bedeviled the U S financial system in the s The term refers to a period of slower upsurge higher unemployment along with rising inflation It is distinctive because a weak financial sector typically keeps inflation in check Such a scenario could create major headaches for the Fed as it prepares for a meeting next week when policymakers are widely expected to cut their short-term rate to about from The Fed is under relentless pressure from President Donald Trump to cut rates At the same time stubborn inflation while the job sphere is weakening is arduous for the central bank because they are diverging trends that require polar reactions from Fed policymakers to address Typically the Fed would cut its key rate when unemployment rises to spur more spending and advance Yet it would do the opposite and raise rates or at least keep them unchanged in the face of rising inflation Last month Chair Jerome Powell signaled that Fed agents are increasingly concerned about weaker hiring setting the stage for a rate cut next week Wall Street investors think there is an chance the Fed will cut twice more after that according to futures pricing tracked by CME Fedwatch Consumer inflation came in mildly hotter than forecast but not nearly high enough to prevent the Fed from starting to cut rates next week Kathy Bostjancic chief economist for Nationwide revealed The labor domain is losing steam and reinforces that the Fed demands to start cutting rates next week and that it will be the start of a series of rate reductions Where inflation heads next is a key question for the Fed While Thursday s analysis presented inflation picked up details distributed Wednesday suggested prices at the wholesale level are cooling Economists also noted that a separate measure of inflation that the Fed prefers which will be published in about two weeks should come in lower than Thursday s figures and paint a more benign picture of prices On a monthly basis overall inflation accelerated rising from July to August faster than the pace the previous month Core prices rose for the second straight month Various economists and certain key members of the Fed think that the current pickup in inflation reflects one-time increases from Trump s sweeping tariffs and won t lead to a lasting inflationary trend They argue that a weaker job domain will hold down wages and force companies to keep prices in check Subadra Rajappa head of U S rates strategy at Societe Generale commented that while inflation was elevated last month there were also signs that the cost of services moderated suggesting that outside of tariffs prices are cooling Yet Joe Brusuelas chief economist at RSM a tax and consulting firm says that higher-income households are still spending sufficiently to push specific prices higher such as hotel and airfare costs which leapt last month Such spending could keep inflation stubbornly high even in a weak job sector he revealed The Fed s getting ready to cut into a sustained increase in prices he mentioned Very extraordinary spot we can see tariff induced inflation in a slow steady and methodical manner Goods prices picked up last month a sign Trump s sweeping tariffs are pushing up costs Gas prices jumped just from July to August the biggest monthly increase since a rise in December Grocery prices climbed pushed higher by more expensive tomatoes apples and beef Rental costs also increased rising faster than the previous month Clothing costs rose just last month though they are still just slightly more expensive than a year ago Furniture costs rose and are higher than a year earlier Certain restaurant owners have boosted prices to offset the rising costs of food Cheetie Kumar who owns Mediterranean eatery Ajja in Raleigh North Carolina noted she s facing higher costs on everything ranging from spices she imports from India coffee and chocolate she gets from Brazil and soy she gets from Canada Those are things that I cannot source locally we do source a lot of produce and meat and everything else from local farmers but I don t know any nutmeg growers in North Carolina she announced Her overall costs are up about from a year ago with beef costs up and much bigger increases for things like coffee chocolate and spices She s raised prices on chosen of her menu items by or but noted she s at the limit of how much she can do so before demand wanes and she stops earning a profit Bigger companies are also feeling the pinch E L F Cosmetics announced this spring that it was raising prices by Last month however CFO Mandy Fields stated it is no longer certain whether the price increases will be enough to offset rising tariff costs Shoppers have yet to feel the big sting that economists had predicted earlier in the year Countless retailers ordered goods ahead of tariffs and have also absorbed a big chunk of the costs rather than passing them along to consumers who ve grown increasingly leery of price increases But Walmart and other big chains have warned of costs increases as they replenish their inventories with the full impact of tariffs in effect