Rising tariffs and slowing job growth fuel U.S. inflation, challenging central bank decision-making
Prices for everyday essentials are climbing at the fastest pace this year, with tariffs and a weakening labour market combining to create fresh uncertainty for both consumers and policymakers, according to the latest data from the US Bureau of Labor Statistics (BLS).
Consumer prices rose 2.9 percent in August compared to a year ago, marking an acceleration from the previous month and the highest rate since the start of the year, as reported by the US Labour Department and highlighted by the BBC.
The cost increases are broad-based: groceries jumped 0.6 percent—the biggest monthly move since August 2022—while apparel, video and audio products, and motor vehicle parts all saw notable gains, according to CNBC.
Coffee prices surged 3.6 percent in a single month and are up more than 20 percent year-over-year, as noted by Fitch Ratings and cited by CNBC.
Tariff-sensitive goods are driving much of this pressure.
Since US President Donald Trump’s latest tariffs took effect, most goods entering the US face taxes of between 10 percent and 50 percent, depending on their origin, as detailed by the BBC.
The price of clothing, household goods, and even tomatoes—of which 70 percent are imported from Mexico—have all increased, with a 17 percent tariff imposed on Mexican tomatoes in July, according to the Florida Tomato Exchange and the BBC.
Analysts told ABC News that while tariffs have modestly contributed to inflation, the largest price jumps remain in housing and food.
The inflation uptick is arriving at a time when the US labour market is showing signs of strain.
The US Labour Department reported that employers added just 22,000 jobs in August, fewer than expected, and the unemployment rate ticked up to 4.3 percent, as per the BBC.
Weekly unemployment filings reached their highest level in nearly four years, and a revision of previous estimates revealed the US economy added 911,000 fewer jobs than initially thought in the year to March, also reported by the BBC.
This combination of rising prices and slowing job growth is raising concerns about stagflation—a scenario where inflation and unemployment rise together.
“The middle-class squeeze from tariffs is here,” said Heather Long, chief economist at Navy Federal Credit Union, as quoted by CNBC. She warned that the situation could worsen as more costs are passed along to consumers.
Policymakers at the Federal Reserve are now facing a dilemma.
With inflation running near 3 percent—well above the Fed’s 2 percent target—and job growth faltering, the central bank is widely expected to cut interest rates at its upcoming meeting, as reported by ABC News.
However, the uptick in inflation may give some officials pause, since lowering rates could further boost spending and put upward pressure on prices.
Economists generally view tariffs as a temporary driver of price increases, but the persistence of inflation alongside labour market weakness is creating a more complex outlook.
“We’ve already been seeing tariffs in the data for several months,” said Luke Tilley, chief economist at Wilmington Trust, as cited by CNBC. “Consumers were not in a really good place to handle the increased prices that are coming from tariffs.”
