The Consumer Price Index rose 0.4% month-over-month in August, doubling the 0.2% pace of increase in July. On an annual basis, inflation climbed 2.9%, compared with the 2.7% year-over-year rate of price growth reported in July. Core CPI, excluding food and energy, rose 0.3% last month and 3.1% from a year prior.

Shelter costs remained the largest contributor to the monthly increase, up 0.4% in August, while food prices rose 0.5%, and energy jumped 0.7% on the back of a 1.9% gasoline spike. In other areas: medical care, recreation, and communication indexes declined.

The August pickup comes after months of relatively muted price growth, even as Trump-era tariffs ripple through the economy. In July, Fed officials signaled that absent tariff uncertainty, they likely would have already cut rates this year. Labor market weakness in recent months have further sharpened the Fed's focus on its employment mandate.

The latest inflation report is likely to strengthen expectations for a September rate cut, with Fed Chair Jerome Powell and Gov. Christopher Waller hinting that the conditions are ripe for lowering borrowing costs. Still, some regional bank presidents, like Kansas City Fed's Jeff Schmid, continue to argue for caution, pointing to the need for a "modestly restrictive" stance as tariffs' long-term impact remains uncertain.

Fed Vice Chair for Supervision Michelle Bowman in a recent speech noted that she foresees three interest rate cuts this year, even as other members of the Federal Reserve's rate-setting committee, including Fed Chair Jerome Powell, have expressed hesitance to cut rates in light of tariffs, given uncertainty about how levies on imports could impact the economy or raise prices.

The uptick in inflation comes at a time when the FOMC is seeing changes in its composition of board members. The Senate Banking Committee on Wednesday approved Stephen Miran, the chair of the White House Council of Economic Advisers and vocal critic of expansive monetary policy, to a seat on the Federal Reserve Board. If confirmed by the full Senate, he would join Lisa Cook, a Biden appointee who remains on the board under a temporary court order as she challenges Trump's efforts to remove her.

While a district court judge ruled this week that she could keep her seat while she challenges President Trump's attempt to fire her, the Justice Department has already appealed that decision, which creates uncertainty about her status according to Ian Katz of Capital Alpha Partners. 

"Cook's case will almost surely end up before the Supreme Court," Katz wrote in a note. "We could see a SCOTUS ruling before the Oct. 28-29 FOMC meeting. Though a Supreme Court decision could go either way, we think Trump has a much better chance of succeeding there than he did in the district court."

The U.S. economy added just 22,000 jobs in August, the weakest gain since the pandemic recovery, according to BLS data released Friday. The unemployment rate climbed to 4.3%, while the number of new entrants to the labor market fell by nearly 200,000 after an increase in July. Long-term unemployment was unchanged but has risen 385,000 since January.

Senator Elizabeth Warren D-Mass., Ranking Member of the Senate Banking Committee said the numbers were a result of the administration's tariffs on foreign goods.

"Today's data shows inflation remains high and families paid even more last month for basics like groceries, electricity, rent, and back-to-school supplies," she wrote in a statement. "President Trump promised to lower costs on 'day one,' but instead his chaotic tariffs and disastrous economic agenda are driving prices higher."