U.S. consumer prices jumped up to the largest annual gain observed in a year during the month of August.The Labor Department stated that its core consumer price index (which excludes volatilities of food and energy) increased by 0.3% for a third month in a row. CPI represents a weighted average of a "basket" of consumer goods and services that the average citizen would spend earnings on, such as transportation, food, and medical care. The main culprits behind the increase were rising healthcare costs, airline tickets, and used car / truck prices. More specifically, in August, gasoline prices dropped 3.5%, food prices remained unchanged, healthcare costs jumped 0.7%, apparel increased 0.2%, and used vehicle prices rose 1.1%. The overall CPI (consumer price index); however, rose by only 0.1%.

With the intensifying U.S. - China trade war placing more and more pressure on the U.S. economy, there are fears that the manufacturing downturn could affect the general economy and potentially lead the country to a recession. The economy is currently being supported by a slow growing but durable labor market. However, the labor market is most certainly not immune to the trade war as it has discouraged some companies from hiring as they focus on cutting their spending and investment amidst global economic uncertainty. The unemployment rate remains at 3.7% for the third month in a row.

Although consumer prices are strong, inflation is below the Federal Reserve's 2% annual target (a level associated with a healthy economy), which has given the Fed room to cut interest rates for the second time this year due to signs of a weakening economy without worrying about consequential price gains. Federal Reserve Chairman Jerome Powell sited trade tensions and slowing global economic growth as catalysts for the interest rate cut.

The current interest rate is set in a range of 1.75% to 2%. The Fed's inflation target of 2% is measured by a different metric - the personal - consumption - expenditure price index (PCEPI), which tracks changes in price of goods and services that are purchased by consumers in the U.S. The PCEPI is much broader than the CPI as it incorporates a larger set of goods and services.