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Energy prices are climbing amid renewed fighting in the Middle East, and that's keeping the overall cost of living stubbornly high. Rising gasoline prices were a leading driver of inflation last month. Investors think that might force the Federal Reserve to raise interest rates when policymakers meet next week. NPR's Scott Horsley reports.
SCOTT HORSLEY, BYLINE: AAA says the average cost of diesel fuel hit an all-time high today, topping $6 a gallon for the first time ever. Jim McNeil loves his diesel pickup truck for its towing power, but with today's high prices, it cost about twice as much to fill the fuel tank as when he bought the truck back in 2019.
JIM MCNEIL: Not good. Not good. When I bought the truck, I felt really good about them, but now they're a little bit high for a while. Hopefully we'll get through it. I hope they go down soon.
HORSLEY: Escalation of the U.S. war with Iran has pushed crude oil prices back above $100 a barrel, and refined products, like diesel, gasoline and jet fuel, are even more expensive. Rising gas prices accounted for more than a third of overall inflation last month. The price of airline tickets and used cars also jumped in August. Over the last 12 months, the cost of living has risen 3.4%, outpacing average wage gains during the year, so the typical worker is losing ground.
Today's inflation report is the last big piece of economic news before next week's Federal Reserve meeting where policymakers have to decide whether to raise interest rates. Fed Chairman Kevin Warsh told an audience in Jackson Hole, Wyoming, last month, after more than five years of elevated inflation, it's past time for the Central Bank to get prices under control.
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KEVIN WARSH: We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed. Otherwise, we have work to do.
HORSLEY: Even before this morning's inflation report, investors were betting the central bank would raise its benchmark interest rate next week. Odds of a rate hike increased after the report came out, with investors putting the likelihood at more than 85%.
While the Fed sets short-term interest rates, longer term borrowing costs are determined by the bond market. Those have also been trending higher, making it more expensive to borrow money to buy a house or a car. Higher interest rates won't necessarily lower the cost of gasoline or diesel fuel, however. That's likely to require some resolution of the fighting in and around the Strait of Hormuz.
Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.
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