August CPI: Inflation Moving in Wrong Direction

By SBE Council at 11 September, 2025, 1:40 pm

by Raymond J. Keating -

The latest Consumer Price Index report from the U.S. Bureau of Labor Statistics (BLS) noted that inflation is moving in the wrong direction.

Once inflation - that is, a persistent increase in the general price level - is unleashed, it's very hard to get it back under control. That's why it's critical that the Federal Reserve remain vigilant about price stability, and remain independent. Indeed, it also is important to keep in mind that the Fed cannot and should not attempt to somehow control or manipulate economic and/or employment growth. Again, the Fed, as the U.S. monetary authority, should be focused like a laser on keeping inflation under control.

Unfortunately, according to the BLS, CPI inflation came in at a hot 0.4 percent in August. And over the past three months, the annualized rate of inflation has come in at roughly 3.6 percent. (See the following chart from the BLS report.)

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Inflation, of course, means a devaluing of the dollar, higher prices for consumers, greater uncertainty, increased costs for businesses, higher interest rates, and diminished returns on investment.

When we speak of the Fed's dual mandate of price stability and maximum employment, as dictated by Congress, the only effective way for the Fed to achieve maximum employment (whatever that actually is) is by maintaining price stability, i.e., by keeping inflation low.

Given that inflation ultimately is about loose money - or, too much money chasing too few goods - the Fed's primary weapon to fight inflation is to keep the money supply under control. And the Fed only has direct control over the monetary base (currency in circulation plus bank reserves).

Unfortunately, as I've noted many times before, starting in 2008, the Fed drove the monetary base to unprecedented and previously unimaginable levels, where it has remained ever since, serving as kindling awaiting sparks to ignite inflation. The pandemic's strangulation of supply chains served as such a match, with massive tariffs posing the latest threat.

However, the Fed has failed to get the monetary base under control, including another increase occurring since October of last year and more generally since early 2023. (See the following two charts.)

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Source: Federal Reserve Bank of St. Louis, FRED

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Source: Federal Reserve Bank of St. Louis, FRED

The Fed's job is price stability. When other objectives come into play, it only makes the Fed's primary goal harder to achieve. This entire effort is only be made worse by politics getting further injected into the monetary policy equation.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. He is the author of " The Weekly Economist " book series, and 10 Points from Walt Disney on Entrepreneurship .