Inflation Remains High in August as Energy Costs and Supply Shocks Persist

Inflation remained stubbornly high in August — and economists said consumers are likely to continue to feel the financial pain in coming months as tensions flare in the Middle East, driving up gasoline and other energy costs.

The consumer price index, a measure of inflation, rose 3.4% on an annual basis in August, unchanged from July, according to data issued Friday by the Bureau of Labor Statistics.

"You've got a lot of shocks that are pushing up inflation and making it uncomfortably high," said Mark Zandi, chief economist at Moody's.

The Iran war, tariffs and artificial intelligence are among the factors putting upward pressure on consumer prices, economists said.

"The shocks, we keep hoping they fade away into the background," Zandi said. "But they're not going away. They're still plaguing us with these big increases."

The CPI report comes as yields on U.S. Treasury bonds have jumped to their highest levels in years, raising borrowing costs for consumers seeking certain types of debt like mortgages and auto loans.

Some economists said Friday's relatively hot inflation reading makes it likely the Federal Reserve will raise interest rates at its policy meeting next week, to cool the economy and help bring the U.S. inflation rate down to its 2% annual target. Inflation has been above that target for more than five years.

The trajectory of interest rates is still somewhat uncertain, though, economists said.

"There's a lot riding on this CPI report as far as the Fed is concerned," said Thomas Ryan, a North America economist at Capital Economics.

Inflation risks seem "definitely skewed" to the upside, Ryan said.

"We're not really convinced we're heading back to 2%, at least over the next six months or anytime soon," Ryan said.

The Iran war has a lot to do with the current high inflation, economists said.

The war has severely restricted the flow of oil through a key Middle East corridor for energy trade, reducing global energy supplies and raising prices, economists said.

"The conflict is a major energy shock to the global economy," said Joe Seydl, a senior markets economist at J.P. Morgan Private Bank.

"If the conflict never happened this year, I don't even really think we'd be talking about inflation with much interest," he said.

Global oil prices jumped back over $100 per barrel this week for the first time since mid-May as hostilities flared in the Middle East.

Initially, oil flows were restricted through the Strait of Hormuz, a key choke point for maritime energy trade. The fighting has broadened out and threatens supply through other key trade routes like the Bab el-Mandeb Strait.

The war, at the margin, "continues to get worse and not better," Seydl said.

The oil supply shock has raised prices for gasoline, diesel, jet fuel and other fuels refined from crude oil.

Gasoline prices were up nearly 4% in the month of August and more than 27% from August 2025, according to Friday's CPI report. Prices averaged about $4.30 per gallon at the pump on Friday, up from $3.19 a year ago, according to AAA.

Gasoline accounted for more than a third of the monthly increase in the consumer price index in August, according to the BLS.

However, economists said they're more worried about price increases for other fuels like diesel. That's because the global economy relies on these fuels for essential functions like transporting food and other goods to stores.

Diesel prices hit $6 per gallon on Friday, a record high.

This dynamic will put upward pressure on inflation in the medium term "because it impacts the cost of hauling and trucking and farming equipment, which eventually flows through supply chains and finds itself in higher prices on the shelves for food, broader goods," said Ryan of Capital Economics.

Meanwhile, a runup in jet-fuel prices has lifted airline prices for consumers, economists said.

Airfare was up nearly 3% in the month of August, and up more than 23% since August 2025, according to CPI data.

Large volumes of fertilizer also transit the Strait of Hormuz, threatening to push up global food prices, economists said.

Economists said that it's unclear to what extent the energy shock might flow through to other parts of the economy. It largely depends on the length of the war, which passed the six-month mark at the end of August.

Energy isn't the only factor putting upward pressure on inflation, economists said.

The AI buildout is also a contributor, they said.

That's because it has driven up demand for — and scarcity of — the computer chips used in AI data centers. Manufacturers use those chips in all types of consumer electronics, from laptops to gaming consoles to those used in newer cars, economists said.

For example, in June, Apple announced higher prices for MacBooks and iPads, citing surging memory and storage costs. Microsoft said shortly afterward that it's increasing the price of Xbox game consoles for a similar reason.

"This is starting to feed through to higher prices for households, too, not just data centers," Ryan said.

Tariffs levied by the Trump administration also "feel like they're still bleeding through" into higher prices for consumer goods, Zandi said.

However, tariffs don't seem to be the primary driver of inflation anymore, said Seydl.

The Supreme Court struck down a central piece of Trump's tariff policy in February. While that gave U.S. businesses and consumers a reprieve from the import taxes, the administration is trying to achieve a similar result by using different legal pathways to levy tariffs, economists said.