Inflation increased in August, disrupting downward trends of the past few months. Although energy prices continue to drive inflation, core inflation indicates stability in the economy, so inflation will quickly fall as soon as the cause of high energy prices, the conflict in Iran, concludes.
The annual rate of inflation held steady at 3.4% since July, though this is still above the Federal Reserve’s ideal target of 2.0%. The Federal Reserve will likely look to control annual inflation with an interest rate hike this week.
Energy, and gasoline prices in particular, are driving inflation. Gasoline prices increased by 3.9% in August, and relatedly, the energy index also rose by 2.1%. Energy and gas prices account for more than one-third of price increases on all items. These prices have a direct cause: the conflict in Iran. Once this issue is resolved, energy prices should decrease quickly, and inflation should also ease. Core inflation, inflation without the food and energy indexes, has risen by 2.4% over the past twelve months, 1% lower than the full inflation index. This indicates that prices on most goods are rising slower than overall inflation—a good sign.
One positive area in August’s Consumer Price Index was certain grocery costs: The food at home index remained unchanged from last month, and certain items—including fruit and vegetables, cereals, meat, and milk—became less expensive. In August, fruit and vegetables fell by 0.4%, breakfast cereals by 1.6%, meats by 0.2%, and milk by 1.2%. This is positive news for consumers looking for affordable kitchen staples.
The National Federation of Independent Business (NFIB) Small Business Optimism Index, which surveys small and independent business owners, remained high at 98.7. Although lower than July by 1.1 points, which was the highest level since August 2025, the index remains soundly above the 52-year average of 98.0. Despite rising inflation this month, small business owners remain convinced of the health of their businesses.
In the meantime, the Trump administration has many tools it can use to increase affordability. Policies such as the Working Families Tax Cuts helped workers dealing with inflation by allowing them to keep more of their paychecks. The increase in workers taking overtime, up 0.2% on a three-month average hourly pace, shows that employees are taking advantage of the no-tax-on-tips and no-tax-on-overtime policies, which allow them to take home more of their pay. The Trump administration can help workers keep more money in their pockets by continuing to promote tax cuts, reducing financial pressure caused by inflation.
Policies that increase supply and production are also critical. Deregulation cuts costs for both producers and consumers. Independent Women’s Affordability Report details specific policies that bring affordability solutions to American families.
These policies will help lower prices and ensure that families can take home more of their pay, increasing affordability. When the conflict in Iran concludes, expect energy prices and inflation overall to decrease quickly.