WASHINGTON, Sept. 3 (Xinhua) -- The U.S. services sector continued to expand in August, but inflation kept squeezing Americans' wallets.

The U.S. services purchasing managers' index (PMI) rose to 55.4 percent in August, its 26th consecutive month in expansion territory, according to data released Thursday from the Institute for Supply Management.

The business activity index also remained in expansion territory in August, increasing 2.6 percentage points to 61.7 percent from July, the report said. The reading was the highest since hitting 62.7 percent in November 2022.

The new orders index registered 60.9 percent, 3.7 percentage points above July's figure of 57.2 percent, according to the report.

The employment index contracted for a second straight month with a reading of 47.8 percent, up by 0.4 percentage points from the 47.4 percent recorded in July.

Positive summer seasonality was also a common theme, with accommodation and food services, as well as arts, entertainment and recreation among the five fastest-growing industries in August.

As a potentially positive sign for employment, there was a slight reduction in the share of companies cutting staff levels, down from 19 percent in July to 17.1 percent in August.

However, prices and inflation tell another story about the U.S. economy, as ordinary Americans continue to feel the sting of inflation.

That particularly impacts those dependent on fixed incomes, such as retirees.

Cathy Sullivan, a 70-year-old retiree in New Jersey, told Xinhua she has continued to see other senior citizens bring stacks of coupons to the grocery store, as food has become increasingly expensive since COVID.

Others complain that chicken prices are much higher than the pre-pandemic level.

Joe Reynolds, 47, who works in marketing outside Washington, D.C., told Xinhua he "can't believe it" every time he goes to the grocery store.

Chicken used to cost "half of what it is now," he said, referring to pre-COVID prices.

Others complain about the high cost of rent in major urban centers.

Elane Rose, a 25-year-old who lives outside New York City, told Xinhua that she cannot afford to rent her own apartment and has to share a space with several roommates.

She added that rent in the area is "incredibly" high.

This situation occurs in the lead-up to November's midterm elections in the United States, and comes after U.S. President Donald Trump campaigned on bringing down the cost of living.

Experts said ongoing inflation in food, gas, rent and home purchases could bode ill for ruling Republicans in the midterms.

"Affordability is a big problem for many Americans as they worry about their jobs and struggle with making ends meet," Brookings Institution Senior Fellow Darrell West told Xinhua.

"The costs of food, gas, and healthcare are rising and harming the ability of people to keep up," West said.

"This issue will be one of the central problems for Republicans in the 2026 elections," West said.

For Republicans, voter turnout will be key to winning the midterm elections -- an uphill climb at a time when many voters are blaming the Republican Party for their economic woes, some experts said.

"Midterm elections are won or lost on turnout," Clay Ramsay, a researcher at the Center for International and Security Studies at the University of Maryland, told Xinhua.

The Republican Party must "get virtually all Republicans to vote," Ramsay said.