US inflation holds at 3.4% in August as Fed rate hike bets rise

U.S. consumer prices rose 0.4% in August as gasoline costs rebounded, while annual inflation held at 3.4%, the Labor Department said Friday. The report, released ahead of next week’s Federal Reserve meeting, reinforced financial-market expectations that policymakers could raise interest rates.

What is the US inflation rate in August 2026?

US inflation was 3.4% year over year in August, unchanged from July. On a monthly basis, consumer prices rose 0.4%, up from 0.1% in July. Core CPI increased 0.3% month over month and 2.4% annually, while gasoline prices were a key driver of the headline increase.

The monthly and annual headline CPI readings were in line with economists’ expectations, according to a Reuters poll and Dow Jones estimates cited by CNBC.

Gasoline prices contributed significantly to the monthly increase after declining for two consecutive months.

Underlying inflation showed somewhat stronger monthly price pressures. Core CPI, which excludes volatile food and energy components, rose 0.3% in August after increasing 0.2% in July.

The monthly core reading was 0.1 percentage point higher than the forecast cited by CNBC.

On an annual basis, however, core CPI eased to 2.4% from 2.5% in July, matching expectations.

The figures suggest consumer inflation remains elevated, while the Fed’s preferred PCE measure is used to assess progress toward its 2% target.

What could August inflation mean for the Fed?

The August CPI report is the final major price indicator the Federal Reserve will receive before its policy meeting next week, when officials will weigh persistent inflation against broader economic conditions.

The central bank is scheduled to conclude its meeting Wednesday with a decision on its benchmark interest rate.

Financial markets have increased expectations that the Fed could raise rates next week, Reuters reported, making the August figures an important input into policymakers’ deliberations.

The Fed’s preferred measure of inflation remains the Personal Consumption Expenditures price indexes, which it uses to assess progress toward its 2% inflation target.

The August CPI report also shows how energy costs can influence headline inflation, with gasoline prices reversing some of their recent declines.

Investors are closely watching the data as they assess the likely path of U.S. interest rates and the implications for broader financial markets.