By Allie Canal

August's Consumer Price Index (CPI) is expected to show inflation remained sticky last month (Courtesy: Getty Images). Hispanolistic via Getty Images

Inflation edged higher in August, government data showed Thursday, as investors looked for signs of how much President Trump’s tariffs are filtering into consumer prices and what that means for how aggressively the Federal Reserve will cut interest rates.

The latest data from the Bureau of Labor Statistics showed that the Consumer Price Index (CPI) increased 2.9% annually in August, a rise from July's 2.7% increase and on par with economist expectations.

Month over month, prices rose 0.4% compared to July's 0.2% increase, an uptick compared to economists' expectations of a 0.3% monthly gain. The rise was driven by stickier gasoline prices and firmer food inflation.

Core inflation, which strips out volatile food and energy, rose 3.1% year over year in August, unchanged from July and in line with estimates. On a monthly basis, core prices climbed 0.3%, matching July’s increase, which was the strongest monthly rise in six months.

Tuesday's report arrives as the Fed debates its next interest rate move. Despite stickier prices in August, markets still expect the Fed to deliver a quarter-point cut at next week's policy meeting, according to the CME FedWatch tool.

Odds of a larger half-point reduction have risen in recent days, especially after preliminary benchmark revisions showed the US economy added 911,000 fewer jobs in the 12 months through March 2025 than initially reported.

Following the release, traders were pricing in about 92% odds of a quarter-point cut and 8% odds of a larger half-point move. By year-end, markets expect the Fed to lower rates by a total of 75 basis points.

Separately, wholesale inflation data out on Wednesday showed producer prices fell 0.1% in August, the first decline in four months, as weaker trade services offset modest goods inflation. The data suggests businesses are absorbing some tariff costs, while the lack of stronger price pressures, even with import duties in place, may also point to softening domestic demand amid a weakening labor market.

This is a breaking news report and will be updated.

Follow the updated reports through Yahoo Finance

Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.