US August consumer prices spike on fuel and rent

Inflation hits seven-month high, signalling possible monetary policy tightening this year

WASHINGTON • US consumer prices accelerated last month amid a jump in the cost of petrol and rents, signs of firming inflation that could allow further monetary policy tightening from the Federal Reserve this year.

The Labour Department said yesterday that its Consumer Price Index (CPI) rose 0.4 per cent last month after edging up 0.1 per cent in July. August's gain is the largest in seven months and lifted the year-on-year increase in the CPI to 1.9 per cent from 1.7 per cent in July.

Petrol prices surged 6.3 per cent, the biggest gain since January, after being unchanged in July. Further increases are likely this month after Hurricane Harvey forced temporary closures of refineries.

Labour Department officials said it was difficult to say whether Harvey, which slammed Texas towards the end of August, impacted on petrol prices last month.

Stripping out the volatile food and energy components, consumer prices increased 0.2 per cent last month. That followed four straight monthly increases of 0.1 per cent.

In the 12 months to August, the so-called core CPI increased 1.7 per cent.

The year-on-year core CPI has now increased by the same margin for four straight months.

  • 0.4%

    Rise in Consumer Price Index last month.

While Federal Reserve officials are likely to treat the petrol-driven rise in the CPI as temporary, they could take comfort in the nearly broad gains in the monthly core CPI.

The Fed's preferred inflation measure is the personal consumption expenditures (PCE) price index excluding food and energy.

The annual increase in the core PCE has consistently undershot the central bank's 2 per cent inflation target since mid-2012.

The core PCE rose 1.4 per cent in July, the smallest year-on-year increase since December 2015.

Economists expect the Fed will announce a plan to start reducing its US$4.2 trillion (S$5.6 trillion) portfolio of Treasury bonds and mortgage-backed securities at its Sept 19-20 policy meeting.

Low inflation, despite the labour market being near full employment, is seen causing the Fed to delay raising rates for a third time this year until December.

Last month, food prices rose 0.1 per cent after rising 0.2 per cent in July. The cost of rental accommodation surged 0.4 per cent in August.

Owners' equivalent rent of primary residence rose 0.3 per cent after advancing by the same margin in July. There were also increases in the cost of doctor and hospital visits. Prices for apparel rose last month, as did the cost of household furnishings. But the cost of mobile phone services continued to fall, as did prices for used cars and trucks.

REUTERS

A version of this article appeared in the print edition of The Straits Times on September 15, 2017, with the headline 'US August consumer prices spike on fuel and rent'. Print Edition | Subscribe