United States consumer prices accelerated in August, while a key measure of underlying inflation posted its largest increase in four months, reinforcing expectations that the Federal Reserve will raise interest rates.
The Labor Department's Consumer Price Index (CPI) report on Friday followed strong readings in several components of the Producer Price Index (PPI) released on Thursday that feed into the Personal Consumption Expenditures price indexes, the inflation measures the U.S. central bank tracks against its 2% target.
The CPI increased 0.4% last month after edging up 0.1% in July, the Labor Department's Bureau of Labor Statistics said.
In the 12 months through August, consumer inflation advanced 3.4%, matching the increase in July. The rise in the CPI was in line with market expectations.
Financial markets are now pricing in an 86.2% chance of a quarter-point rate hike at the Fed's meeting this week, according to the CME Group FedWatch Tool.
Firmer inflation readings, combined with signs that the labour market regained its footing in August, may compel Fed officials to raise borrowing costs not only next Wednesday, but possibly again in October or December.
A 3.9% jump in gasoline prices after two consecutive monthly declines accounted for more than a third of the monthly increase in the CPI.
Other motor fuels, including diesel, surged 9.6% and were up 44% year-on-year in August.
There was, however, some respite for consumers at the supermarket. Food prices edged up 0.1% for a second consecutive month, while grocery prices were unchanged amid muted increases in the costs of meat and fish.
Fruit and vegetable prices fell 0.4% over the month, weighed down by a 6.2% drop in the cost of lettuce because of a Cyclospora outbreak.
Egg prices increased 2.9%, while nonalcoholic beverages, dairy and related products also became more expensive. Food prices advanced 2.7% year-on-year in August, while annual consumer inflation continued to outpace wage growth.
Inflation-adjusted average hourly earnings fell 0.3% over the year in August.
Meanwhile, the University of Michigan's Surveys of Consumers also deteriorated, as its Consumer Sentiment Index fell to 47.8 in early September from 51.7 in August.
Consumers also anticipated higher inflation over the next 12 months and five years.
Excluding food and energy, the CPI rose 0.3% last month, the largest increase since April. That was above expectations for a second consecutive month of a 0.2% gain.
Core CPI increased 2.4% year-on-year in August after rising 2.5% in July.
Airline fares increased 2.7%, reflecting higher jet fuel costs. The cost of education and communication services rose solidly, while rents increased 0.2% and prices for hotel and motel rooms rebounded 2.4%.
Healthcare costs eased, and motor vehicle insurance fell 0.8%.
Core goods inflation remained benign, suggesting the pass-through from import tariffs was fading, although an escalation in trade tensions between the United States and Canada posed an upside risk.
Prices of new motor vehicles, used cars and trucks increased, while prescription medication prices were unchanged.
