Beef is being prepared for grocery stores customers in Miami, Florida on July 22, 2025.
Joe Raedle | Getty Images
This week’s major inflation report is expected to show prices have accelerated again in August, but it does not prevent the Federal Reserve from cutting benchmark rates at next week’s meeting.
The Bureau of Labor Statistics is set to release its producer price index for August on Wednesday, followed by a more closely watched consumer price index the following day.
Economists expect the report to show an overall 0.3% increase, including full-item indexes in the headline and key core readings that rule out volatile food and energy prices, according to Dow Jones.
In that case, the annual headline CPI rate is 2.9%, the highest level since January, and is even higher than the Fed’s 2% target, up 0.2 percentage points from July. On that face, it would seem like the Fed is deterrent to ease monetary policy when we meet next week.
However, two factors work. First, core readings are predicted to remain unchanged at 3.1%. Second, the rise in inflation is largely expected to come from tariff-sensitive goods rather than service prices that affect a much larger portion of the US economy of $30 trillion.
If these trends are apparent in the report, it is expected that central bank policymakers will draw attention and more attention to the increasingly weaker job markets that may use boosts from lower rates. Fed officials are mostly looking at tariffs as one-time price increases are unlikely to cause long-term inflation.
“The tally is still hotter than the Fed wants to see,” said James Knightley, ING’s chief international economist. “They’re looking at a wider picture. The US is primarily an economy of the services sector.”
President Donald Trump’s tariffs could possibly show further in the inflationary vision, including rising prices for items such as cars, furniture and clothing.
However, “aside from the impact of tariffs, the underlying trend of inflation is expected to drop further, reflecting a reduction in housing rental and contributions from the labor market,” an economist at Goldman Sachs said in a memo.
But it’s a double-edged sword for the economy, but consumers feel in a pinch as their declining housing value and wages are not rising rapidly, offering another incentive for interest rate reductions.
“The combination, price concerns, revenue concerns, wealth concerns, these three things are pretty toxic for the growth story,” Knightly said. “It’s starting to get more vigilant with the Fed about where we’re headed.”
Producer prices reported prior to CPI are considered as indicators of pipeline pressure. Despite a 0.9% rise in July, the increase is expected to ease in August.
