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A spike in gas prices pushed up U.S. inflation in August, yet most other costs rose at a more modest pace, evidence that consumer price increases overall are still cooling.
In a set of conflicting data on Wednesday, the Labor Department said the consumer price index rose 3.7 per cent in August from a year ago, up from a 3.2 per cent annual pace in July. Yet excluding the volatile food and energy categories, so-called core prices rose 4.3 per cent, down from 4.7 per cent in July and the smallest increase in nearly two years. That remains far from the U.S. Federal Reserve’s two per cent target.
Despite the seemingly divergent figures, the decline in the core measure could add to optimism that inflation is coming under control. The Federal Reserve closely tracks core prices because they are seen as a better indicator of future inflation trends. Wednesday's figures also make it more likely the Fed will skip an interest rate hike at its meeting next week. While more expensive gas could elevate inflation this month as well, most economists forecast that inflation will slowly decline through the end of the year.
On a monthly basis, consumer prices jumped 0.6 per cent in August, the biggest increase in more than a year. Gas prices spiked nearly 11 per cent in August, though they have since levelled off: According to AAA, the average nationwide price at the pump was US$3.84 on Tuesday, little changed from a month ago.
Excluding food and energy, core prices increased just 0.3 per cent in August from July.