Inflation holds at 3.4% as energy prices climb

U.S. inflation remained elevated in August as rising fuel costs kept pressure on households and businesses, adding urgency to the Federal Reserve’s interest rate decision next week.

Consumer prices rose at an annual rate of 3.4%, unchanged from July, according to data from the U.S. Bureau of Labor Statistics released Friday. The figure was slightly higher than the 3.3% rate economists polled by FactSet had expected, CBS News reported. Core inflation, which excludes volatile food and energy prices, increased to 2.4% in August, according to The Guardian.

The consumer price index tracks the cost of a basket of goods and services typically purchased by consumers. While inflation has eased from its recent peak of 4.2% in May, it remains above levels seen before the war in Iran, with energy costs playing a central role.

Diesel prices climbed past $6 a gallon for the first time, a milestone that could affect costs across the economy because diesel powers trucks, buses, trains and other transportation used to move goods. AAA data cited by CBS News showed the national average for diesel at a record $6.06 on Friday, up more than 60% from $3.71 a year earlier. Gasoline also rose sharply, with AAA reporting a national average of $4.30 a gallon Friday; The Guardian cited an average of $4.29, about $1.10 higher than a year ago.

“The No. 1 issue in the economy is inflation. The Federal Reserve is focused on it and so is Main Street,” Heather Long, chief economist at Navy Federal Credit Union, said in an email before the CPI data was released, according to CBS News. “The growing problem for the Fed is that there’s no end in sight for the war in Iran and oil reserves are only getting lower.”

The report comes days before the Fed’s next policy meeting, where officials will decide whether to change interest rates or leave them unchanged. CBS News said the decision is set for Wednesday, Sept. 16. The outcome could affect borrowing costs for mortgages, car loans and student debt.

Fed Chair Kevin Warsh has emphasized that controlling inflation remains the central bank’s priority. In a closely watched speech last month in Jackson Hole, Wyoming, Warsh said underlying inflation trends had not “meaningfully improved” over the summer.

“We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do,” Warsh said.

The Fed voted 9-3 at its July meeting to hold rates steady, The Guardian reported, marking the first time in a decade that three board members dissented on a policy decision. Interest rates now stand in a range of 3.5% to 3.75%, down two percentage points from two years ago. Inflation had reached 9.1% in 2022 before falling to 2.3% in April 2025 after the Fed raised rates as high as 5.25% to 5.5%.

Fed Governor Christopher Waller said last week there was “considerable uncertainty about how military conflicts, trade policy, and artificial intelligence will affect prices and economic activity.” Speaking at a Reuters event, he said, “If there is continued progress toward our 2% goal, then I am willing to support holding the policy rate at its current level. But if inflation comes in hot, I would consider a rate hike.”

The inflation reading also lands in a politically sensitive period. The Guardian reported that consumer sentiment has hit record lows and that Americans say they are struggling to afford gas and groceries. President Trump last week urged the central bank to cut rates, writing on social media that it “must get smart” and that “A STRONG COUNTRY MEANS A LOWER INTEREST RATE.” On Wednesday night, he said Americans would receive a $5,000 “dividend” if Republicans win a majority in the midterms, a proposal critics described as akin to bribery, according to The Guardian.