Inflation firmed last month, with price increases picking up for goods such as cars and clothes and essentials like food and housing. At the same time, signs of weakness in the labor market are accumulating, illustrating the tightrope that the Federal Reserve now walks as officials consider cutting interest rates next week. Meanwhile, the European Central Bank held rates steady as it waits for more clarity on how the Trump administration’s tariffs will affect growth and inflation.

Consumer prices were up 2.9% in August from a year earlier, the Labor Department said Thursday, returning to the highest level since the start of the year. That was up from 2.7% in July and a recent low of 2.3% in April, but in line with expectations from forecasters, who have expected businesses to steadily pass along higher costs from tariffs on imported goods and materials.

The number of Americans who filed for initial unemployment benefits rose last week, hitting the highest level since October 2021. In the week through Sept. 6, jobless claims filings rose to 263,000, up from 236,000 a week earlier. Economists polled by The Wall Street Journal were forecasting 235,000 claims.

The European Central Bank left its key deposit rate at 2% on Thursday for the second consecutive meeting. It brought rates down eight times starting in June 2024, an aggressive easing campaign that contrasts with the Federal Reserve. The Fed’s reluctance to cut rates attracted criticism from President Trump, which has evolved into moves that would undermine the central bank’s independence.

Mortgage rates fell this week to their lowest level in nearly a year due to widespread expectations that the Federal Reserve will cut rates next week, offering the beleaguered housing market some relief. The average 30-year fixed mortgage rate fell to 6.35%. That’s the lowest level since October and a notable drop from January, when rates were above 7%, according to Freddie Mac.

The U.K.’s economic growth ground to a halt in July, though the Bank of England is still expected to persist with its cautious path of rate cuts when it meets next week amid still-high inflation. Gross domestic product didn’t rise from June in the first month of the third quarter, the U.K.’s Office for National Statistics said Friday, matching consensus estimates from economists polled by The Wall Street Journal. GDP grew 0.4% on month in June.

10 a.m.: University of Michigan Survey of Consumers - preliminary
12 p.m.: World Agricultural Supply & Demand Estimates (WASDE)
7 p.m.: U.S. Congressional Budget Office releases 'CBO's Current View of the Economy From 2025 to 2028'

8:30 a.m.: Empire State Manufacturing Survey

Despite a 0.3% increase for core consumer prices in August, the core version of the Fed's preferred inflation metric—PCE inflation—probably only increased by less than 0.2% last month. That is analysts' conclusion after studying CPI and PPI data this week, which are combined in the formula that yields PCE inflation. If they are right, 12-month core PCE inflation could hold steady at 2.9% in August, perhaps allowing the Fed to take a more sanguine view on price pressures at its September meeting. "In short, core PCE inflation remains on track to do no worse than rise to a little more than 3% by the end of the year, as the Fed projected in June," Stephen Brown of Capital Economics writes. — Matt Grossman

• Canada says it will throw its weight behind five projects under way—covering mining, energy and infrastructure—to ensure their completion as part of an economic revamp aimed at reducing the country’s reliance on a protectionist U.S.
• The Organization of the Petroleum Exporting Countries left its oil-demand forecasts unchanged after agreeing to raise production again next month, doubling down on its strategy shift in a push for market share.
• Hopes of an economic recovery in New Zealand have dimmed further after data showed activity across the country's manufacturing sector weakened alarmingly in August. The seasonally adjusted performance of manufacturing index for August was 49.9, down 2.9 points from 52.8 in July and below the average of 52.5 since the survey began. (Dow Jones Newswires)

WSJ Pro Central Banking brings you central banking news, analysis and insights from WSJ’s global team of reporters and editors. This newsletter was compiled by markets reporter Vicky Ge Huang in New York. Send your tips, suggestions and feedback to vicky.huang@wsj.com.