Inflation report to show latest prices as Iran war pushes up gas costs

An inflation report to be released on Friday will provide the latest gauge of price increases as the Iran war continues to drive up fuel costs midway through its seventh month.

The fresh data, which details inflation in August, is set to arrive days after oil prices topped $100 a barrel and gas prices notched their highest level for any Labor Day on record.

The economy has shown signs of additional strain in recent days, including a bond selloff that threatens to raise borrowing costs for mortgages and credit cards.

Central bankers are sure to closely examine the inflation report as they weigh a potential interest rate hike at their meeting next week. Federal Reserve Chair Kevin Warsh has vowed to cool off persistently elevated price increases.

Economists expect prices to have climbed 3.4% over the year ending in August, which would leave the annual inflation rate unchanged from the previous month.

Still, the anticipated figure would put inflation more than a percentage point higher than the Fed's target rate of 2%.

Despite a stubborn bout of inflation, the economy remains fairly robust by some measures.

A blockbuster jobs report last week showed employers added 162,000 workers in August, demonstrating continued resilience for the nation's labor market. The economy grew over three months ending in June, defying fear of a downturn triggered by the Iran war.

Inflation, however, continues to weigh on shoppers, while raising the likelihood of Fed intervention that may slow the economy.

Attacks on oil tankers in the Middle East pushed global crude prices above $107 a barrel as of Thursday, which amounted to a rise of more than 50% since the Iran war broke out in late February.

The average price of a gallon of gas in the U.S. stood at $4.27 as of Thursday, putting it nearly $1.30 higher than before the war, AAA data showed.

Record-high diesel prices have raised transport costs for many everyday products, including groceries, clothes and furniture.

The price woes have divided central bankers eager to contain inflation but reluctant to cool off the labor market.

The Fed opted to hold interest rates steady at its most recent meeting in July. Three of the 12 members on the Fed's policymaking board, however, voted in favor of a rate hike, marking the largest number of dissenters casting ballots in the same direction since 2016.

Financial markets peg the odds of a quarter-point rate hike next week at 71%, according to the CME Group's FedWatch tool, a measure of investor sentiment.

Warsh, who took the helm of the central bank in May, said late last month that it should prioritize fighting inflation.

"Inflation is running above our 2% target so the Fed's predominant focus right now should be on prices," Warsh said in remarks last week at the Fed's annual summer gathering in Jackson Hole, Wyoming.

"If the Fed gets inflation wrong and judges the economy wrong, who gets the worst of it? Not the financial high-fliers. Hard-working Americans are the ones left to deal with inflation that is too high or jobs that suddenly appear less secure," Warsh added.