Donald Trump’s inflation challenge is threatening to overshadow the Republican campaign for November’s midterm elections, as rising fuel, mortgage and borrowing costs weaken his claims that prices have fallen sharply under his presidency.
The latest Consumer Price Index showed prices increasing at an annual rate of 3.4 per cent in August. The figures increased the likelihood of the Federal Reserve raising interest rates next week, despite Mr Trump’s repeated demands for cuts.
Consumer confidence also deteriorated. A University of Michigan survey found sentiment had fallen sharply this month, with Americans expressing concern that the economy was losing momentum and inflation would continue to rise.
The economic unease came as Mr Trump used two days of speeches at the Republican midterm convention in Dallas to argue that his party had delivered “tremendous economic success”. He said the United States under Republican control had brought prices “way, way down”.
He also promised to send American citizens a $5,000 cheque if Republicans retain control of the House of Representatives and Senate in November. Mr Trump has made similar promises in the past without delivering them.
“So if the Republicans win, you win with us,” he told supporters, later adding: “Congratulations. Now all we have to do is win.” The White House did not respond to a request for comment.
Rising fuel and mortgage costs test Trump’s economic claims
The inflation figures have complicated an otherwise more positive economic picture. The labour market has remained strong, the economy is growing and the boom in artificial intelligence has generally pleased financial markets.
But those gains have not necessarily been felt by households, after years of accumulating costs that peaked during the coronavirus pandemic. Prices rose faster than hourly pay in August for the fifth consecutive month.
“The economy is performing well, but this isn’t buoying consumer attitudes,” said Oren Klachkin, a financial market economist at Nationwide. He said consumers were focused on rising prices and interest rates reducing their purchasing power.
Mr Klachkin said he did not expect inflation to come down “at a meaningful pace any time soon”, citing uncertainty over Mr Trump’s tariffs and the war with Iran.
Renewed hostilities in Iran pushed Brent crude, the global oil benchmark, briefly to $110 a barrel on Friday. US petrol prices rose alongside it, reaching an average of almost $4.30 a gallon, while diesel exceeded $6 a gallon to set a record.
Kevin Hassett, director of the White House National Economic Council, acknowledged that the cost of diesel was a “big, big issue” for the economy. He attributed the rise to geopolitical uncertainty, including events in the Middle East.
Mr Trump said high oil and petrol prices could persist until “right after the election”, although he predicted they would then fall quickly. “They’re going to be tumbling down, and we’ll get them down,” he told reporters, adding that petrol would eventually fall below $2 a gallon.
The energy shock has added to pressure on the Federal Reserve and its chairman, Kevin M Warsh. Interest rates are currently between 3.25 and 3.75 per cent, while Mr Trump has called for substantial reductions and threatened to cut off trade with countries that sell more to the US than they buy if rates are not lowered.
Higher government borrowing costs have also fed through to housing. Yields on 10-year US Treasury bonds climbed above 4.9 per cent, their highest level since 2023, while the average rate on a 30-year mortgage reached about 6.8 per cent last week.
Michael Fratantoni, chief economist at the Mortgage Bankers Association, said mortgage rates could soon reach “at or above 7 percent”. The increase has undermined Mr Trump’s promise at the start of the year to pursue an aggressive plan to reduce housing costs.
The higher yields have increased the cost of servicing America’s debt, which has recently passed $40 trillion. An attempt by Treasury Secretary Scott Bessent to buy older bonds failed to bring yields down, as markets remained focused on wider economic pressures.
Brett Loper of the Peter G Peterson Foundation estimated that Mr Trump’s proposed $5,000 payments could cost $1.2 trillion. Added to existing fiscal pressures, he said, the plan would probably “lead to greater inflation and higher interest rates”.
