A measure of underlying U.S. inflation accelerated by more than forecast to a one-year high in August, signaling inflation was already firming ahead of fresh tariffs on Chinese goods this month that may push prices higher for Americans.
The core consumer price index, which excludes food and energy, rose 0.3 per cent from the prior month and was up 2.4 per cent from a year earlier, a Labor Department report showed Thursday. That exceeded the median estimates in a Bloomberg survey, while the broader CPI climbed 0.1 per cent on the month and a below-forecast 1.7 per cent annually.
The core reading reflected the biggest monthly rise in medical-care costs since 2016. Sustained increases in inflation could give some Federal Reserve policy makers pause as they weigh additional interest-rate cuts this year, though the central bank is expected to make a second straight reduction next week as the global growth outlook dims and uncertainty over trade policy damps business investment.
Inflation may pick up further this month following the latest escalation in the tariff battle, as President Donald Trump's levies on a range of consumer goods from China took effect Sept. 1. Late Wednesday, Trump delayed the next round of tariff increases by two weeks to Oct. 15 as the U.S. and China try to resume face-to-face talks.
A separate report Thursday showed filings for unemployment benefits fell last week to the lowest level since April, a sign the broad labor market remains healthy even with signs some parts of the economy are slowing.
The Labor Department's CPI gauge tends to run faster than the Commerce Department's personal consumption expenditures price index, the Fed’s preferred inflation measure.
While the Fed officially targets 2 per cent headline inflation, policy makers look to the core index for a better read on underlying price trends. That index has shown signs of firming in recent months; it rose 1.6 per cent annually in July.
Trump has repeatedly cited a lack of inflation in his demands for the Fed to lower interest rates, saying Wednesday the central bank should cut rates “to zero, or less” to reduce government debt-finance costs.
The medical-care index rose 0.7 per cent from the prior month. The report reflected a record 1.9 per cent rise in health-insurance prices, along with increases in hospital services and nonprescription drugs. Such figures may give fuel to Democratic candidates who are promoting wider access to health care in their campaigns against Trump and Republicans in 2020.
Also driving the core inflation gain were used-car prices, up 1.1 per cent for a third straight increase, while new-vehicle costs dropped for a second month. Meanwhile, shelter costs, which make up about a third of total CPI, rose 0.2 per cent from the prior month, matching the slowest gain this year.
Energy prices fell 1.9 per cent from the prior month as gasoline dropped 3.5 per cent. Food prices were unchanged for a third month, while apparel was up 0.2 per cent.
Economists surveyed by Bloomberg had forecast the core gauge would rise 0.2 per cent from the prior month and 2.3 per cent from a year earlier, with the broader index seen rising 0.1 per cent on the month and 1.8 per cent on a yearly basis, the same pace as July.
A separate Labor Department report Thursday showed average hourly earnings, adjusted for price changes, rose 1.5 per cent in August from a year earlier, following 1.4 per cent in July. Slower inflation gives