U.S. consumer prices rise slowly

U.S. consumer prices rose less than expected in August as increases in gasoline and rents were offset by declines in healthcare and apparel costs, and underlying inflation pressures also appeared to be slowing.

Despite the moderate consumer price increases last month, inflation remains underpinned by a tightening labor market and robust economic growth. Labor market strength was reinforced by other data on Thursday showing the number of Americans filing for unemployment aid dropped last week to near a 49-year low.

“With labor market conditions tight, wage growth accelerating and input prices being pushed up by capacity constraints and recently imposed tariffs, there is plenty of upward pressure on prices,” said Paul Ashworth, chief U.S. economist at Capital Economics in Toronto.

The Consumer Price Index increased 0.2 percent last month after a similar gain in July. In the 12 months through August, the CPI rose 2.7 percent, slowing from July’s 2.9 percent advance. Excluding the volatile food and energy components, the CPI edged up 0.1 percent. The so-called core CPI had increased by 0.2 percent for three straight months.

In the 12 months through August, the core CPI gained 2.2 percent after rising 2.4 percent in July. Economists polled by Reuters had forecast the CPI climbing 0.3 percent and the core CPI gaining 0.2 percent in August.

The inflation report came on the heels of data on Wednesday showing producer prices falling in August for the first time in 1-1/2 years.

The dollar, which has gained more than 6 percent this year against the currencies of the United States’ main trade partners, is weighing on the prices of goods such as apparel.

August’s tepid consumer price gains did not change expectations that the Federal Reserve will raise interest rates at its Sept. 25-26 policy meeting. The U.S. central bank has lifted rates twice this year.

The Fed tracks a different inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, for monetary policy. The core PCE price index increased 2.0 percent in July, hitting the Fed’s 2 percent target for the third time this year.

“Of course there is always significant month-to-month volatility in the subcomponents, but looking out longer-term we continue to believe that the most likely outcome is a gradual firming in consumer price inflation,” said Michael Feroli, an economist at JPMorgan in New York.

“At this point in the cycle the Fed’s concerns appear to be shifting from undesirably low inflation to undesirably high inflation.”

An escalating trade war between the United States and China is expected to drive up inflation. President Donald Trump last week threatened duties on another $267 billion worth of Chinese goods on top of a $200 billion tariff list that is awaiting his decision. Washington already has slapped duties on $50 billion worth of Chinese imports, provoking retaliation from Beijing.

Minutes of the U.S. central bank’s July 31–Aug. 1 meeting published last month showed “several participants commented that increases in the prices of particular goods, such as those induced by the tariff increases, would likely be one source of short-term upward pressure on the inflation rate.”

The dollar fell against a basket of currencies on the inflation data and also as the European Central Bank left interest rates unchanged, staying on track to end bond purchases this year and raise rates next autumn.

U.S. Treasury yields dipped while stocks on Wall Street were trading higher.