U.S. markets were closed Monday for Labor Day, but the holiday itself delivered the week's most consequential data point: AAA put the national average for regular gasoline at $4.14 a gallon over the weekend, up 4 cents week over week and the highest Labor Day price ever recorded. The prior holiday record was $3.82, set in September 2012. The national average has never before crossed $4 on Labor Day.
That number matters more than usual this year, because the August Consumer Price Index lands Friday, September 11, at 8:30 a.m. ET — four days before the Federal Open Market Committee convenes on September 15-16.
The Energy Pass-Through Is Already in the Data
July's CPI was benign. The Bureau of Labor Statistics reported the index rose just 0.1% on the month, with the energy index down 1.5% and gasoline off 2.9%. Headline inflation held at 3.4% over 12 months and core CPI — excluding food and energy — came in at 2.5%.
The year-over-year energy figures tell the real story. Energy is up 14.7% over 12 months and gasoline up 24.6%, and the July decline came before the latest leg of the Middle East escalation. Brent crude climbed toward $97 a barrel Monday as the U.S. and Iran exchanged strikes, after the U.S. targeted three Iranian oil tankers over the weekend. Brent touched $105 in late July following attacks on tankers transiting the Strait of Hormuz, the channel that carried roughly 20% of global oil supply before the conflict. Diesel set a fresh record of $5.85 a gallon on September 4, eclipsing the June 2022 high.
Kiplinger's inflation outlook projects the headline rate ends 2026 at 3.6%, up from the current 3.4%, if gasoline stays above $4. A durable cease-fire with Iran would instead pull it back toward 3.0%.
Forecasts Point to a Firmer Core
Consensus looks for CPI to rise 0.3% in August, matching July's unadjusted pace. On the core measure, Morningstar reported Goldman Sachs economists see a 0.36% monthly gain against a 0.30% consensus — a reacceleration from the 0.2% core readings of the past two months. Producer prices for August arrive Thursday, one day ahead of CPI.
Tariffs remain the second pressure point. Tariff revenue is running more than 150% above last fiscal year, and the argument that firms can absorb those costs indefinitely gets harder to make each quarter.
The Fed Is Genuinely Split
The Fed has not raised rates at all in 2026. Markets have swung hard on Fed communication in the past two weeks: hike odds for September jumped to 66.1% after Chair Kevin Warsh told the Jackson Hole symposium the Fed still has "work to do" on its 2% target, then retreated to roughly 50-50 after Governor Christopher Waller signaled he leans toward holding, provided inflation continues to moderate. CME FedWatch has recently shown about a 50.6% probability of a hold versus 49.4% for a 25-basis-point hike. Three of 12 voting members preferred a hike at the last meeting.
A firm core print Friday hands the hawks their case. A soft one leaves Waller's patience intact. Traders who want the decision made for them will not get it before Friday morning.
Sources: U.S. Bureau of Labor Statistics (July 2026 CPI release and August release schedule), AAA (national gas and diesel averages, Labor Day record), CNBC (Fed rate-hike odds, Warsh and Waller commentary, oil markets), Fortune (CPI/PPI schedule, Strait of Hormuz supply share), Morningstar (Goldman Sachs core CPI forecast), Kiplinger (2026 inflation outlook), Al Jazeera (Strait of Hormuz tanker attacks), Trading Economics (Brent crude pricing).