U.S. consumer prices rose more than expected in August as health care costs recorded their biggest gain in 32-1/2 years, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year.
As Reuters reports, the cost of living last month was also pushed up by sustained increases in rents. The uptick in inflation is likely to be welcomed by Fed officials when they gather next week to deliberate on monetary policy, though a rate hike is not expected at that meeting.
“The economy may not be firing on all cylinders, but growth is enough to spark a little more inflation than we thought. The Fed decision is going down to the wire,” says Chris Rupkey, chief economist at MUFG Union Bank in New York.
The Labor Department says today its Consumer Price Index increased 0.2% last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1% after advancing 0.8% in the year through July.
The so-called core CPI, which strips out food and energy costs, rose 0.3% last month, the biggest increase since February, after gaining 0.1% in July.
Economists had forecast the CPI nudging up 0.1% last month and the core CPI gaining 0.2%. The core CPI increased 2.3% in the 12 months through August after rising 2.2% in the year through July.
The dollar rallied against a basket of currencies on the data, while prices for U.S. Treasuries were mixed. U.S. stocks were trading lower, with sentiment also hurt by declining oil prices and a massive $14 billion fine slapped on Deutsche Bank.
The Fed is expected to leave interest rates unchanged next week against the backdrop of a raft of disappointing economic reports for August, including weak retail sales and industrial production as well as a slowdown in job growth.
A separate report today, however, shows consumer sentiment was steady in early September, suggesting retail sales could rebound in the coming months.
