A new report shows the cost of living in August was up 3.4% from a year ago, because apparently the only thing rising faster than prices is investor confidence that the Federal Reserve will raise interest rates next week.

Energy prices are climbing amid renewed fighting in the Middle East, keeping the overall cost of living stubbornly high. Rising gasoline prices were a leading driver of inflation last month, which is a polite way of saying your commute is now a subscription service. Investors think that might force the Federal Reserve to raise interest rates when policymakers meet next week.

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 prices, it cost about twice as much to fill the tank as when he bought the truck back in 2019.

"Not good. Not good," McNeil said, offering the kind of blunt economic analysis that somehow never makes it into Fed statements. "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."

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 - a feat of economic gravity that requires no additional funding to achieve.

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 that after more than five years of elevated inflation, it's past time for the Central Bank to get prices under control.

"We must be confident that underlying inflation is moving to our objective clearly and at sufficient speed," Warsh said. "Otherwise, we have work to do."

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% - a number that suggests the bond market has already picked out the Fed's outfit for next week.

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 - which, regrettably, is not something the Fed can fix with a sternly worded press conference.