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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% from the prior month and was up 2.4% from a year earlier, a Labor Department report showed Sept. 12. That exceeded the median estimates in a Bloomberg survey, while the broader CPI climbed 0.1% on the month and a below-forecast 1.7% annually.
The core reading reflected the biggest monthly rise in medical care costs since 2016 and record increases in health insurance prices. Sustained increases in inflation could give some Federal Reserve policymakers 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 slows 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 Sept. 11, 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 Sept. 12 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% headline inflation, policymakers 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% annually in July.
Trump has repeatedly cited a lack of inflation in his demands for the Fed to lower interest rates, saying Sept. 11 the central bank should cut rates “to zero, or less” to reduce government debt-finance costs.
The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet.....— Donald J. Trump (@realDonaldTrump) September 11, 2019
The medical care index rose 0.7% from the prior month. The report reflected a 1.9% monthly rise and 18.6% annual increase in health insurance prices — records in data back to 2005 — 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% 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% from the prior month, matching the slowest gain this year.
Energy prices fell 1.9% from the prior month as gasoline dropped 3.5%. Food prices were unchanged for a third month, while apparel was up 0.2%.
Economists surveyed by Bloomberg had forecast the core gauge would rise 0.2% from the prior month and 2.3% from a year earlier, with the broader index seen rising 0.1% on the month and 1.8% on a yearly basis, the same pace as July.
A separate Labor Department report Sept. 12 showed average hourly earnings, adjusted for price changes, rose 1.5% in August from a year earlier, following 1.4% in July. Slower inflation gives Americans more purchasing power if wages are rising.
With assistance from Kristy Scheuble.