Underlying US inflation ran at a faster-than-expected monthly pace in August, leaving the door open for additional interest-rate hikes from the Federal Reserve.
The so-called core consumer price index, which excludes food and energy costs, advanced 0.3% from July, marking the first acceleration since February, Bureau of Labor Statistics data showed Wednesday. From a year ago, it increased 4.3%, in line with estimates and marking the smallest advance in nearly two years.
Economists favor the core gauge as a better indicator of underlying inflation than the overall CPI. That measure rose 0.6% from the prior month, the most in over a year and reflecting higher energy prices. Gasoline costs accounted for over half of the advance in the overall measure in August, according to BLS.
The report adds to concerns that the renewed momentum in the economy is reigniting price pressures. While Fed officials have been growing more optimistic they can tame inflation without a recession, a reacceleration in price growth could force them to push interest rates even higher — with the risk of sparking a downturn in the process.
The CPI is one of the last major reports the Fed will see before its meeting next week, in which policymakers are largely expected to hold rates steady. Chair Jerome Powell said last month interest rates will stay high and could rise even further should the economy and inflation fail to cool.
Treasury yields and stock futures fluctuated. Traders still expect the Fed to hold rates steady next week while bets for a November hike were at about 50%.
The advance in the CPI was supported by higher costs for rent, motor-vehicle insurance and air travel. New-car prices rose for the first time in five months. Costs declined for used cars and admissions to concerts and movies.
Shelter prices, which are the biggest services component and make up about a third of the overall CPI index, increased 0.3%, the smallest gain since early last year and dragged down by hotel stays. A moderation in housing costs is an essential feature for a sustained downward trend in core inflation.
Excluding housing and energy, services prices rose 0.4% from July, the fastest in five months, and 4% from a year ago, according to Bloomberg calculations. While Powell and his colleagues have stressed the importance of looking at such a metric when assessing the nation’s inflation trajectory, they compute it based on a separate index.
For most Americans, household budgets are still under strain. Energy costs broadly rose, especially gasoline, which rose more than 10% last month. Utility costs also increased. Meanwhile, grocery prices advanced at the slowest annual pace in two years.
--With assistance from Chris Middleton, Reade Pickert, Matthew Boesler and Liz Capo McCormick.
This article was provided by Bloomberg News.