A surge in natural gas prices pushed up inflation in August, but most other costs rose at a more modest pace, suggesting consumer price gains overall are still cooling.
In a series of conflicting data on Wednesday, the U.S. Labor Department said the consumer price index rose 3.7% year-on-year in August, up from the 3.2% annual rate in July. However, excluding the volatile food and energy categories, so-called core prices rose 4.3%, down from 4.7% in July and the smallest gain in nearly two years. That’s still far from the Fed’s 2% target.
While the data appear to be divergent, the decline in core indicators is likely to increase optimism that inflation is under control. The Fed tracks core prices closely because they are seen as a better indicator of future inflation trends.
Wednesday’s data also makes it more likely that the Fed will skip raising interest rates at next week’s meeting. While higher natural gas prices are also likely to push up inflation this month, most economists predict inflation will slowly decline by the end of the year.
On a monthly basis, consumer prices rose 0.6% in August, the largest increase in more than a year. Natural gas prices surged nearly 11% in August but have since leveled off: The national average price at a pump was $3.84 on Tuesday, little changed from a month ago, according to AAA.
Excluding food and energy, core prices rose just 0.3% in August from July.
Svlook