Over the past year, inflation has steadily fallen from 9% to 3%.
But a high-stakes report due Wednesday is expected to show that price pressures within the economy accelerated again in August, underscoring the challenge in taming high inflation.
Economists expect the consumer price index, which measures a range of goods that include gasoline, health care, groceries and rent, to show that monthly prices rose 3.6% in August, above the 3.2% increase recorded the previous month.
On a monthly basis, prices are seen jumping 0.6%, the fastest one-month increase since June 2022, when prices peaked at a high of 9.1%.
"The monthly rate of change in both headline and core CPI measures have moderated nicely in recent months, but some of the usual trouble spots remain — shelter, and costs for motor vehicle insurance, maintenance and repair," said Greg McBride, chief financial analyst at Bankrate. "Further progress will require easing of price pressures on these items without any flareup elsewhere."
The anticipated price spike stems from rising energy prices.
West Texas Intermediate crude, the U.S. benchmark, climbed to more than $89 a barrel Tuesday, the highest level since November 2022, when prices hit $92. Brent crude, the international benchmark, was also up to about $89 a barrel, about 10% higher than the start of the year.
The Federal Reserve is closely watching the report for evidence inflation is finally subsiding as policymakers try to cool the economy with a series of aggressive interest rate hikes. Officials approved 11 rate increases in a span of just 16 months, lifting the benchmark federal funds rate from nearly zero to the highest level since 2001.
Parts of the report are expected to point to a slow retreat for inflation, a worrisome sign for the U.S. central bank. Core prices, which exclude the more volatile measurements of food and energy, are expected to climb 0.2%, or 4.3% annually, suggesting that underlying price pressures remain strong. The Fed's target inflation rate is 2%.
Central bank officials are also taking into consideration other economic indicators, including job growth and consumer inflation expectations.
The August jobs report offered a mixed picture of the economy. Employers added 187,000 jobs last month, better than expected, but the unemployment rate ticked higher to 3.8%. Wage growth also came in under estimates, a welcome sign for the Fed in its war against inflation.
A majority of investors anticipate the Fed will hold rates steady during its Sept. 19-20 meeting.
The probability of another rate hike is just 7%, according to data from the CME Group's FedWatch tool, which tracks trading.
"The Federal Reserve is very likely to leave rates unchanged at their meeting later this month, but inflation readings are still highly relevant to what the Fed does — or does not — do in the months ahead," McBride said. "A disappointing CPI report could begin to frame expectations for another rate hike in the fourth quarter."