US Consumer Price Rose More Than Expected in August

U.S. consumer prices rose more than expected in August on higher rents and health-care prices, signaling that growing inflation may allow the Fed to raise interest rates this year.

The consumer-price index increased a seasonally adjusted 0.2 percent in August after being little changed in July, the Labor Department said on Friday in Washington. Excluding food and energy costs, the so-called core CPI climbed 0.3 percent last month, the biggest increase since February.

Economists had expected the CPI would nudge up 0.1 percent and the core CPI would gain 0.2 percent.

“It is hard to imagine that it will turn out to be more than a one-off,” said Stephen Stanley, chief economist at Amherst Pierpont Securities, in a note to clients. “the methodology of these price indices did not suddenly change, so there is no reason to think that we are looking at a watershed moment.”

Cost for shelter and healthcare offset a drop in gasoline prices. Expenses for shelter rose 0.3 percent from the prior month and owners-equivalent rent also rose 0.3 percent.

“We’re seeing a little bit of a tick up in core inflation,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “But most of the inflationary pressure is coming from housing rental costs and medical care costs. Other than those two categories, there really hasn’t been much change in the inflation dynamics in the past few months.”

The strong consumer prices data may affect Fed’s decision next week. Fed has a 2 percent inflation target and Fed Governor Lael Brainard said on Monday she wanted to see stronger consumer spending data and signs of rising inflation before hiking rates.

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