Core Prices Rise More Than Expected, Raising Odds of Fed Hike

Consumer prices moved up sharply in August.

The consumer price index rose 0.4 percent compared with July, driven higher by rising gasoline prices, the Labor Department reported Friday. Over the year, the consumer price index is up 3.4 percent, matching the July annual increase.

Core prices, a measure that excludes food and energy prices, rose 0.3 percent in August. Compared with a year ago, core prices are up 2.4 percent. That is a decline in year-over-year core inflation from last month’s 2.5 percent.

Economists had forecast CPI would increase by 0.4 percent from the prior month and 3.4 percent from a year ago. Core prices were expected to rise 0.2 percent for the month and 2.4 percent over the past 12 months.

The larger-than-expected increase in core prices is likely to convince investors that the Fed will raise interest rates when it meets next week.

The index for gasoline rose 3.9 percent in August, accounting for over one-third of the monthly all-items increase. Compared with a year ago, gasoline prices are up 27.4 percent.

Grocery prices were flat for the month and are up 2.2 percent from a year ago. Dining out prices rose 0.3 percent and are up 3.4 percent from a year ago.

Core goods prices, a measure which excludes food and energy, rose 0.1 percent. Compared with a year ago, they are up 0.7 percent. Prices of core services, a measure that excludes energy services, rose 0.3 percent and are up three percent for the year.

Electricity prices fell in August, declining 0.2 percent. This was the second time in three months that electricity prices have fallen. Last month, they ticked up 0.1 percent. In June, electricity prices fell by one percent. For the year, electricity is 3.8 percent higher.

Apparel prices were flat for the month after rising 0.1 percent in July and falling 0.6 percent in June. For the year, clothing prices are up 3.6 percent.

Shelter prices rose 0.3 percent in August, bringing the yearly gain to three percent.

Medical care services prices fell 0.2 percent and are up 2.5 percent from a year ago. Medical care goods also fell 0.2 percent. These are down 2.7 percent from a year ago. Prescription drug prices were flat for the month after declining in the previous two months. They are down 2.9 percent from a year ago. Non-prescription drug prices fell one percent, the second consecutive monthly decline. For the year, they have fallen by two percent.

Prices of major appliances jumped 1.4 percent in August after falling the previous two months. Compared with a year ago, major appliance prices are down 1.9 percent. Furniture prices fell by 0.9 percent in August after being flat in July. They are down 0.8 percent from a year ago.

Prices of new cars and trucks rose 0.3 percent compared with July. Compared with a year ago, they are up 0.6 percent. Used car and truck prices climbed 0.4 percent for the second month in a row. Compared with August of last year, however, they are down 2.3 percent.