The summer cooldown in inflation hit a speed bump in August. Consumer prices rose 0.4% from July and 2.9% from a year earlier, with shelter the biggest single driver and gasoline turning higher after a quiet stretch, according to the Bureau of Labor Statistics’ latest Consumer Price Index release.
Core prices, which strip out food and energy, climbed 0.3% on the month and 3.1% on the year. Those figures keep inflation above the Federal Reserve’s 2% goal even as the broader trend has moderated since last year.
Gas prices matter because they feed directly into headline inflation and indirectly into shipping and services costs.
After easing through much of the summer, the U.S. average for regular gasoline edged up to about $3.17 per gallon in the week ended September 22.
That is roughly flat versus a year earlier, but it helped lift the energy index 0.7% in August and the gasoline index 1.9% on the month.
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If crude prices continue to firm into the fall, the pass-through to pump prices could keep headline inflation choppy even if underlying trends keep cooling.
Tariffs are a slow burn
The tariff picture has shifted over the past year and it is not neutral for prices. The United States finalized changes to China-related Section 301 tariffs in 2024 and then implemented additional increases on a range of imports between January 6 and May 13, 2025.
The Congressional Budget Office estimates those 2025 tariff hikes will raise inflation by an annual average of 0.4 percentage points in 2025 and 2026.
The effect is unlikely to hit all at once. It shows up gradually as importers adjust contracts and as retailers pass through costs in categories where foreign goods are hard to substitute.
Which categories feel it most depends on where tariffs rose and how concentrated supply chains are. Consumer electronics, certain machinery and inputs for clean-energy products have been in focus.
Automobiles and parts can also see pressure if levies raise the cost of components with limited domestic alternatives.
Those effects are smaller than energy swings month to month, but they can add persistence to goods prices that otherwise have been easing as supply chains normalized.
Fiscal policy supports demand through transfers, procurement and investment programs, and that demand can make it harder for prices to decelerate when the economy is running near capacity.
The CBO currently projects a federal deficit of about $1.8 trillion for fiscal 2025, a figure that reflects strong interest costs and outlays that remain elevated by historical standards.
A large deficit does not automatically mean faster inflation, but it can complicate the disinflation process if it coincides with tight labor markets and resilient consumer spending.
At the same time, several forces are pulling the other way. Goods disinflation remains a buffer as inventories are ample and global logistics have improved.
Shelter inflation, while still the largest monthly CPI contributor, has been drifting lower on a year-over-year basis as new lease rates roll through.
And the Fed’s preferred measure, the PCE price index, was running at 2.6% year over year in July, with fresh August readings due today.
That mix points to an economy where the center of gravity for inflation is lower than in 2022, but not yet comfortably at target.
What should investors watch next? First, the fuel tape. Weekly EIA data will show whether late-September firming at the pump sticks into October.
Second, tariff policy, Any additional actions or reversals can tilt goods prices at the margin.
Third, the fiscal path, as Congress finalizes funding and the administration executes industrial policy, the size and timing of outlays will influence demand and, by extension, the pace of disinflation.
For now, inflation is being nudged by gas prices, underpinned by shelter and services, and given a modest lift by tariffs, all against the backdrop of a still-large deficit. That is a recipe for uneven progress rather than a straight line to 2%.
