Grocery Prices Squeezed Budgets as CPI Inflation Hit Its Highest Since January

Inflation continued to crunch household budgets in August as tariffs pushed consumer prices.

Prices as measured by the Consumer Price Index rose 2.9% over 12 months ending in August, the Bureau of Labor Statistics said Thursday. Inflation was up from a 2.7% annual increase in July and reached the highest since January,

“Core” inflation, which excludes volatile prices for food and energy, rose 3.1%, the same annual increase as in July. According to a survey of economists by Dow Jones Newswires and The Wall Street Journal, both increases were in line with forecasters’ expectations.

Inflation has steadily risen this year as merchants have passed on the costs of President Donald Trump’s sweeping import taxes. The impact has been slow to arrive as businesses had stocked up on inventory in advance of the tariff campaign, but those stockpiles are running out.

“With buffer inventories that had been built ahead of tariffs being depleted, businesses are now forced to replenish stock at elevated prices,” Katy Stoves, investment manager at Mattioli Woods, wrote in a commentary. “With the tariffs looking to be more permanent, companies now have cover to pass these rising costs onto consumers, rather than compressing margins.”

Grocery Inflation Highest In Three Years

Grocery prices rose 0.6% between July and August, the biggest monthly increase since August 2022, and are up 2.7% over the year, the biggest annual increase since August 2023. Gasoline prices rose 1.9% in August, almost reversing the 2.2% drop from the prior month.

Prices for used cars rose 1% over the month, while apparel prices rose 0.5%, pushing up core inflation.

Prices for goods other than food and energy rose 0.3% from July, the most since January and underscoring the impact of tariffs: in the pre-pandemic era, core goods prices often fell because of cheap imports, helping keep overall inflation in check, but have risen for the last three months in a row.