US Inflation Rises to 2.9% in August Amid Labor Market Weakness

In August 2025, the U.S. Consumer Price Index (CPI) rose by 2.9% year-over-year, up from 2.7% in July, marking the largest annual increase since January. Core CPI, which excludes food and energy prices, remained steady at 3.1%.

Simultaneously, initial applications for state unemployment benefits increased by 27,000 to a seasonally adjusted 263,000 for the week ending September 6, the highest level in nearly four years. This rise exceeded economists' expectations and signals potential weakening in the labor market.

These developments present a challenge for the Federal Reserve as it prepares for its upcoming policy meeting. The central bank is expected to implement a quarter-point interest rate cut to address labor market concerns, despite the uptick in inflation.

Economists caution that the combination of rising inflation and a softening labor market could lead to stagflation, a scenario characterized by stagnant economic growth and high inflation.

The Federal Reserve will need to carefully balance its approach to support economic growth while managing inflationary pressures.