Rising inflation and a deteriorating job market puts the Fed and Americans in a difficult spot

AP News – Thursday, September 11, 2025
By Christopher Rugaber

Inflation rose last month as the price of gas, groceries and airfares jumped while new data showed applications for unemployment aid soared, putting the Federal Reserve in an increasingly tough spot as it prepares to cut rates at its meeting next week despite persistent price pressures.

Consumer prices increased 2.9% in August from a year earlier, the Labor Department said Thursday, up from 2.7% the previous month and the biggest jump since January. Excluding the volatile food and energy categories, core prices rose 3.1%, the same as in July. Both figures are above the Federal Reserve’s 2% target.

A separate government report Thursday showed that weekly applications for unemployment aid jumped 27,000 to 263,000, the highest in nearly four years. Requests for jobless benefits are a proxy for layoffs. Recent reports have also showed that hiring has weakened dramatically this year and was lower than previously estimated last year.

The data raises the specter of “stagflation,” a trend that last bedeviled the U.S. economy in the 1970s. The term refers to a period of slower growth, higher unemployment along with rising inflation. It is unusual because a weak economy typically keeps inflation in check.

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