Washington, Sept 12 (AFP/APP):A key measure of US inflation last month took its biggest leap in more than a year as costs for hospital services and over-the-counter medications rose, according to a government report Thursday.
Despite signs prices may finally be starting to heat up, the Federal Reserve is widely expected to cut interest rates again next week as policymakers seek to ward off the dangers of a slowing world economy amid President Donald Trump’s trade conflicts.
After several years of low unemployment failed to ignite inflation, a single month’s data may not be enough to persuade economists the long-expected return of price pressures has begun.
The Consumer Price Index, which tracks costs for household goods and services, rose 1.7 percent compared to August of last year, a tenth of a point lower than July, weighed down by falling gasoline and electricity prices.
But when volatile food and energy prices are stripped out, the “core” CPI surged 2.4 percent, the biggest gain since July 2018.
Housing costs, airfares, used auto prices and the cost of recreation all pushed the index higher.
Compared to July, monthly CPI increased only 0.1 percent, matching expectations. But for the third month in a row, the core index rose by a faster-than-expected 0.3 percent in August.
Economists widely expect the US Federal Reserve to deliver another interest rate cut next week, despite steady economic growth, strong labor markets and resilient consumer spending due to the uncertainty created by the trade war with China that is weighing on the outlook.
But economist Diane Swonk of Grant Thornton said rising core inflation could stir up opposition within the Fed to further interest rate cuts.
“The job of convincing the Fed to do more in the absence of more economic weakness just got a bit harder for Fed Chairman Jay Powell,” she wrote in an analysis of the inflation numbers.
“He will sway the majority to do another quarter-point rate cut next week, but not without additional dissents.”
The Fed cut the benchmark lending rate in July for the first time in more than a decade, but two members of the policy committee voted against the move.
In separate report, the Labor Department said inflation-adjusted hourly wages for US workers rose in August by the most since December.
Real average hourly earnings rose 0.4 percent compared to July, suggesting consumers may have the cash to support continued growth in retail sales, a linchpin of the economy.