KATHMANDU: U.S. consumer inflation stood at 3.4 percent in August, government data released on Friday showed. The Federal Reserve has raised expectations that the Federal Reserve may raise interest rates in the United States, the world’s largest economy, next week due to persistently high prices.

Consumer price index (CPI) inflation is still much higher than it was earlier this year and well above the Federal Reserve’s long-term target of two percent.

High prices have plagued American families for years after the pandemic. At the time, consumer inflation reached 9.1 percent. The ability to afford basic necessities like food and fuel will be a key issue in November’s midterm elections.

Some Fed policymakers have signaled that they are ready to raise interest rates if August inflation data shows inflation not slowing. The central bank’s interest rate-setting committee is scheduled to meet next week.

Any move to raise interest rates will make US President Donald Trump unhappy. He has waged an unprecedented campaign against the independence of the Federal Reserve and has been demanding policymakers to reduce interest rates to boost economic activity.

Trump has launched a criminal investigation into former Fed Chairman Jerome Powell and appears to be trying to remove another governor. Last week, he also threatened to suspend trade relations with some countries if the Fed raised interest rates.

Trump is under pressure because of the high cost of living. In November, Democrats are trying to take control of both houses of Congress and block the Republican agenda in the last two years of his term.

Fuel price jump

Fuel prices accounted for one-third of the monthly consumer price increase, according to Friday’s data. According to data from AAA Motor Club, gasoline prices in the U.S. have risen 44 percent since the start of the Iran war in February.

On Friday, the price of diesel in the U.S. hit an unprecedented six dollars per gallon (per 4.5 liters). It has also pushed up transportation, agriculture and construction costs. The ‘internal’ inflation index, which excludes volatile fuel and food prices, rose 2.4 percent year-on-year in August.

“The resurgence in oil, gasoline and diesel prices raises concerns that higher energy prices, such as other goods and services, and inflation expectations are likely to spread,” Kathy Bostancik, chief economist at Nationwide, said in a note. ”

He expects the Fed to raise interest rates by 25 basis points to between 3.75 and 4.0 percent at next week’s meeting. Bernard Yaros of Oxford Economics said the Federal Reserve’s decision was “on edge.”

“The CPI report for August will prompt the committee to raise interest rates, but it is not yet certain,” he said. “High prices are hurting the US economy hard.” Wholesale inflation in August exceeded expectations, according to government data on Thursday.

The Fed last raised interest rates three years ago. The growth cycle that began to control rising prices during the pandemic came to an end. Inflation has declined steadily since its peak in 2022, but has never reached the Fed’s 2 percent target during this period. Inflation, which dropped to 2.4 percent in February, has again reached a three-year high due to the Trump administration’s Iran war.

When the US and Israel invaded Iran at the beginning of the war, many high-ranking officials, including the Iranian leadership (Supreme Leader), were killed and thousands were mutilated. This plunged the Middle East into chaos. In retaliation for the attack, Tehran targeted U.S. regional allies and closed important energy trade routes.

The Fed has been slashing interest rates since 2024 but has kept it steady between 3.50 and 3.75 percent this year as inflation soared and President Trump’s tariffs hike hit the economy.

As President Trump’s popularity plummeted, on Wednesday, he promised a $5,000 “dividend” to every American adult if Republicans won both houses of Congress in the November election. Democrats have rejected the proposal, saying it was a vote-buying aid.

Democratic Senator Elizabeth Warren slammed Trump over the latest inflation numbers, saying, “Today’s data shows that Americans had to pay even more in August on housing, airfare, and childcare. ”