Barring volatile food and energy prices — the way the Fed likes to scrutinize underlying inflation — the U.S. Consumer Price Index rose 0.3% month over month, compared with expectations for 0.2%. The year-over-year rate was in line with expectations for 2.4% and down a tenth of a percentage point from July.

On a headline basis, CPI rose 3.4% in August, in line with expectations, and 0.4% month over month. Note that with the Middle East tensions showing signs of no cooling, global borrowing costs came under renewed pressure lately as surging energy prices clouded the economic outlook and heightened concerns about inflation and government debt burdens. The latest inflation print added to the woes.

Inside the Rise in Bond Yields

The yield on Germany’s 10-year government bonds, the euro area benchmark and a traditional safe-haven asset, crossed 3.5% for the first time since April 2011, according to LSEG data, as quoted on CNBC.

The U.S. 10-year Treasury yield, a key benchmark for mortgage and credit card rates, edged higher after topping 4.9% Thursday for the first time in three years. Japan’s 10-year government bond yield climbed 6 basis points Friday, remaining just below the 1996 high reached last week.

Oil and Gas Prices Keep Inflation Risks Elevated

Oil prices eased Friday but remained near the $100-a-barrel mark, with Brent crude futures trading at $105.4 a barrel. European natural gas futures, meanwhile, climbed to their highest level since 2022.

“Comments from Donald Trump suggest the chances of any diplomatic progress [with Iran] before the midterm elections in the U.S. are looking slim,” AJ Bell investment director Russ Mould said in a Thursday note. He added that markets may have to contend with elevated oil prices for at least the next couple of months.

Stagflation Concerns Spread Across Markets

Analysts at Deutsche Bank said fears of stagflation — a combination of weak economic growth and high inflation — were spreading across multiple asset classes, as quoted on CNBC.

The bank cited several risks, including continued shipping disruptions in the Strait of Hormuz and the Red Sea, reduced Saudi Arabian oil output and hawkish signals from the European Central Bank following the interest-rate hike on Sept. 10, 2026.

ECB May Face Pressure to Tighten Policy Further

Germany’s central bank chief told CNBC Friday that persistently high energy prices could prompt the European Central Bank to push interest rates into mildly restrictive territory to contain inflation.

France also lowered its 2026 annual growth forecast to 0.4% from 0.7% previously, citing inflation, summer heat waves and a downturn in construction activity.

U.K. Bond Yields Buck the Trend

U.K. borrowing costs offered a rare bright spot Friday, with yields falling across both the short and long ends of the curve. The move followed stronger-than-expected economic growth in July, which came in at 0.4%.

Central Banks Face a Tough Trade-Off

Persistently high energy costs and trade tensions may force central banks to keep interest rates elevated even as economic growth weakens. Europe and Asia remain the most vulnerable due to their reliance on imported energy, while the United States is also feeling the impact through higher fuel prices and borrowing costs.

Why the Fed Can Hike Rates in September?

Latest labor data reinforced expectations that the Fed can stay focused on inflation, especially as rising energy prices threaten to fuel price pressures. The U.S. labor market showed renewed strength in August, reversing the slowdown seen over the summer. 

Nonfarm payrolls increased by a seasonally adjusted 162,000, marking the strongest monthly job gain since March (read: August U.S. Hiring Rebounds Sharply: 5 ETFs Likely to Gain).

Fed funds futures are pricing in a roughly 90% likelihood that the central bank lifts borrowing costs at its September policy meeting, according to CME’s FedWatch tool (at the time of writing). A month ago, those odds were hovering around 48%.

Inside U.S. GDP Growth Momentum

The U.S. economy grew at an annualized rate of 1.5% in the second quarter of 2026, slowing down from a 2.1% growth rate in the first quarter. Now, with Middle East tensions showing no signs of slowing, U.S. GDP growth may be downgraded.

Inside Global Growth Momentum

Global growth is projected at 3.0% in 2026 and 3.4% in 2027, broadly unchanged from April’s forecast, according to IMF. This 3% projection was a downgrade from earlier estimates of 3.1% and 3.3% in 2025.

In its June Economic Outlook, the OECD said global growth is now expected to slow from 3.4% in 2025 to 2.8% in 2026, as quoted on CNBC.

How to Play Stagflation Risks with ETFs?

Against this backdrop, we suggest a few ETFs that can be worth investing in at the time of higher inflation.

AXS Astoria Inflation Sensitive ETF (PPI Quick QuotePPI - Free Report)

AXS Astoria Inflation Sensitive ETF is an actively managed, broadly diversified ETF that seeks long-term capital appreciation in inflation-adjusted returns. Renowned ETF experts at Astoria Portfolio Advisors manage PPI by investing where the opportunities are: cyclical stocks (such as natural resources, energy, industrials and materials), commodities and TIPS. The fund charges 57 bps in fees and yields 1.32% annually.

Fidelity Stocks for Inflation ETF (FCPI Quick QuoteFCPI - Free Report)

The underlying Fidelity Stocks for Inflation Factor Index reflects the performance of stocks of large and mid-capitalization U.S. companies with attractive valuations, high-quality profiles and positive momentum signals, emphasizing industries that tend to outperform in inflationary environments. The fund charges 15 bps in fees and yields 1.55% annually.

Quadratic Interest Rate Volatility And Inflation Hedge ETF (IVOL Quick QuoteIVOL - Free Report)

The Quadratic Interest Rate Volatility and Inflation Hedge ETF is actively managed and seeks to achieve its investment objective primarily by investing, directly or indirectly, in a mix of U.S. Treasury Inflation-Protected Securities and long options tied to the shape of the U.S. interest rate curve. The expense ratio of the fund is 0.98%. It yields 3.98% annually.        

Horizon Kinetics Inflation Beneficiaries ETF (INFL Quick QuoteINFL - Free Report)

The fund gives exposure to domestic and foreign equity securities of companies that are expected to benefit, either directly or indirectly, from rising prices of real assets (i.e., assets whose value is mainly derived from physical properties such as commodities) such as those whose revenues are expected to increase with inflation without corresponding increases in expenses. It charges 85 bps in fees.

ProShares Inflation Expectations ETF (RINF Quick QuoteRINF - Free Report)

The FTSE 30-Year TIPS (Treasury Rate-Hedged) Index tracks the performance of long positions in the most recently issued 30-year TIPS and duration-adjusted short positions in U.S. Treasury bonds of, in aggregate, approximate equivalent duration dollars to the TIPS. The fund charges 30 bps in fees and yields 3.60% annually.