Inflation pressures are building again in the United States, increasing the possibility that the Federal Reserve could raise interest rates as soon as next week — a move that could make borrowing more expensive for millions of Americans.
Wholesale prices rose 0.4% in August and 5.4% from a year earlier, according to new Producer Price Index data released Thursday. Energy prices were a major driver, jumping 4.2% during the month, while transportation and warehousing costs, hospital services and airfares also showed increases.
Although consumers don’t pay wholesale prices directly, higher costs for businesses can eventually work their way into prices at stores and across the broader economy. The Federal Reserve is particularly concerned because inflation remains above its 2% target, while the labor market has remained relatively stable.
Financial markets are now putting roughly a 70% probability on a quarter-point Federal Reserve rate increase at its September 15–16 meeting. The Fed has kept its benchmark interest rate at 3.50% to 3.75% since December, but another increase could eventually translate into higher borrowing costs for credit cards, auto loans and other variable-rate debt. Mortgage rates are not set directly by the Fed, although expectations about inflation and monetary policy can influence them.
One major piece of the inflation picture is still coming. The government’s Consumer Price Index for August will be released Friday at 8:30 a.m. ET, providing a much clearer look at what consumers themselves are paying. Economists surveyed by Reuters expect overall consumer prices to have risen 0.4% in August and 3.4% from a year earlier.
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For American households, the concern isn’t simply that inflation remains elevated. If persistent price increases persuade the Federal Reserve to raise rates again, consumers could face pressure from both sides of the household budget — higher prices for everyday expenses and higher costs to borrow money. Friday’s consumer inflation report could therefore become the deciding piece of evidence before the Fed meets next week.
