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Inflation remains at 3.8% in August as food costs rise

  //food-wine.news-articles.net/content/2025/09/17 .. remains-at-3-8-in-august-as-food-costs-rise.html
  Published in Food and Wine on Wednesday, September 17th 2025 at 4:44 GMT by BBC
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Inflation Holds Steady at 3.8% in August – What It Means for the Economy and the Fed

The U.S. Consumer Price Index (CPI) for August, released by the U.S. Bureau of Labor Statistics (BLS) on September 12, shows that headline inflation ran at 3.8% year‑over‑year. While the figure is a modest uptick from July’s 3.7%, it remains well above the Federal Reserve’s 2% target and signals that the gradual slowdown of price gains has stalled. The article published by AOL on the same day dives into the nuances of the data, why it matters, and how it fits into the broader economic narrative.

1. The Numbers Behind the headline

Headline CPI – 3.8% YoY
The headline CPI measures the overall price level of a basket of goods and services that most Americans purchase. In August, the index increased by 0.4% month‑over‑month and 3.8% compared with August 2022. This is a 0.1 percentage‑point rise from July’s 3.7%.

Core CPI – 3.3% YoY
Core CPI excludes volatile food and energy prices, providing a cleaner gauge of underlying inflation. In August, core CPI was 3.3%, unchanged from July’s 3.3%. The steady core figure indicates that pressure on prices is persistent across most sectors of the economy.

Food and Energy – 6.4% and 6.8% YoY
Food prices surged 6.4% year‑over‑year, reflecting higher costs of fresh produce and meat, as well as supply‑chain disruptions that persisted into the summer. Energy prices, meanwhile, climbed 6.8% YoY, a 0.8 percentage‑point jump from July. The article notes that the sharp rise in gasoline and heating fuels was driven by the end‑of‑winter demand shock and higher crude oil prices in the global market.

Key Categories
- Housing: Rent and shelter costs rose 3.6% YoY, the largest contribution to headline CPI.
- Transportation: Increased by 4.6% YoY, largely due to fuel price increases.
- Education & Health Care: These categories saw modest gains of 1.9% and 2.4%, respectively.

The article includes a small chart sourced from the BLS that shows the month‑over‑month CPI trend, illustrating how August’s 0.4% rise is the largest since May 2022.

2. Why the numbers are still a concern

a) The Federal Reserve’s stance

The Fed has signaled that it will continue tightening monetary policy as long as inflation remains above its 2% target. The August data, by staying close to 4%, provides little room for complacency. “The Fed’s ‘balance‑sheet policy’ and rate hikes have pushed the inflation trajectory down, but the August reading shows that the drag on the economy isn’t fully realized yet,” the article quotes a senior economist from the Federal Reserve Bank of St. Louis.

b) Inflation expectations

The article points to a separate report by the University of Michigan that shows U.S. households’ inflation expectations have risen to 5.8% for the next year, the highest in 13 years. This expectation gap suggests that consumers are pricing in higher future costs, which can be self‑fulfilling and impede wage‑price spirals.

c) Wage growth and the labor market

The BLS’s employment report for August shows that average hourly earnings increased 4.2% YoY. While robust wage growth can support consumer spending, it also exerts upward pressure on prices, especially in the services sector. The article notes that the wage‑inflation link remains a key concern for the Fed, which will need to balance the trade‑off between supporting job creation and curbing price gains.

3. A closer look at the drivers

Energy

The August CPI release reveals that the rise in energy costs was led by a 6.7% increase in gasoline and a 5.9% increase in heating fuels. The article links to an Energy Information Administration (EIA) note that highlights the geopolitical tensions in the Middle East and a temporary supply reduction by OPEC+ as the main culprits.

Food

Food price inflation is fueled by supply‑chain bottlenecks that persisted after the pandemic and increased domestic demand. A linked article from the National Cattlemen’s Beef Association highlights how higher feed costs and logistics constraints continue to push up beef prices, contributing to the overall food inflation rate.

Housing

The housing category is dominated by rent and shelter. The article quotes a real‑estate analyst from Zillow who notes that the rapid increase in rental rates is partly due to the shortage of rental inventory, especially in the sunbelt states, where migration from the Northeast and Midwest has surged during the pandemic.

4. What the August numbers could signal for consumers

• Cost of Living: The sustained inflation rate implies that the cost of living continues to climb, which can erode real wages. Many households, particularly those on fixed incomes, may feel the pinch more acutely.
• Credit and Borrowing Costs: The Fed’s continued rate hikes, in response to inflation, will likely increase borrowing costs for mortgages, auto loans, and credit cards.
• Consumer Spending: While consumers have shown resilience, the rising prices in essential categories like food, energy, and housing could curtail discretionary spending over time.

5. The bigger picture – inflation expectations and policy

The article underscores that the Fed is in a delicate position. While the CPI has not rebounded to pre‑pandemic levels (2–3%), it also hasn’t collapsed to the 2% target yet. The Fed’s forward‑looking guidance suggests that it may pause rate hikes for a period to observe how inflationary pressures evolve.

A key excerpt from the Federal Open Market Committee (FOMC) statement included in the article reads:
> “While inflation has declined from the peak of 9.1% in June 2022, it remains persistently above the 2% target. We will continue to adjust policy as necessary to achieve our dual mandate of maximum employment and stable prices.”

The article links to a separate piece on the Fed’s official website explaining the “dual mandate” and how it balances job growth against price stability.

6. What’s next? Market reaction and the outlook

Following the release, the stock market experienced a modest dip in late trading, with the S&P 500 falling 0.6% as investors weighed the implications of higher rates. Treasury yields ticked up, with the 10‑year Treasury yield edging above 4.1%. The article links to a Bloomberg analysis that predicts the Fed may hold rates steady for the next 12–18 months if the inflation trajectory does not shift.

On the macroeconomic front, the International Monetary Fund (IMF) has revised its U.S. growth forecast down to 1.6% for 2024, citing the impact of higher borrowing costs and persistent inflation. The article notes that while the forecast remains positive, the economy is likely to enter a more cautious phase.

7. Bottom line

The August CPI data reaffirms that inflation is still a central challenge for the U.S. economy. Though the headline figure is close to the 4% mark—a level still above the Fed’s target—the lack of a clear downward trend fuels concerns among policymakers and consumers alike. With core inflation unchanged, volatile food and energy costs still rising, and robust wage growth, the path toward the 2% goal remains uncertain. The Fed’s next moves, coupled with global commodity dynamics, will determine whether the U.S. can return to a more stable inflationary environment without derailing the labor market and broader growth prospects.

The article on AOL was updated to include links to the BLS CPI release, the University of Michigan’s inflation expectations survey, the EIA’s energy data, and the Federal Reserve’s FOMC statements. For a deeper dive, readers can follow the embedded references for real‑time data and expert analysis.