Consumer Prices in U.S. Rose More Than Forecast in August

U.S. Consumer Prices Top Projections in August
  • Increase is driven by costs of shelter, medical care
  • Move probably isn’t enough to change dynamics of Fed debate

The cost of living in the U.S. rose more than projected in August on higher shelter and health-care prices, indicating that inflation continues to move toward the Federal Reserve’s goal.

The consumer-price index climbed 0.2 percent after being little changed the previous month, Labor Department figures showed Friday in Washington. The median estimate of economists surveyed by Bloomberg was for a 0.1 percent advance. Excluding volatile food and fuel costs, the so-called core measure rose a bigger-than-forecast 0.3 percent from a month earlier.

Stabilizing energy prices, the diminishing influence of the strong dollar and nascent wage gains are helping to gradually push inflation higher. While most economists and investors expect the Fed to leave interest rates unchanged when policy makers meet next week, a sustained pickup in inflation would bolster the case for a hike later this year.

“We’re seeing a little bit of a tick up in core inflation,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “But most of the inflationary pressure is coming from housing rental costs and medical care costs. Other than those two categories, there really hasn’t been much change in the inflation dynamics in the past few months.”

Expenses for shelter climbed 0.3 percent from the prior month. Owners-equivalent rent, one of the categories designed to track rental prices, also rose 0.3 percent.

Health Care

Prices for medical care services, which include health insurance, doctor visits and hospitalizations, increased 0.9 percent in August, the most since November 1990. These readings often vary from results for this category within the Fed’s preferred measure of inflation -- the core personal consumption expenditures deflator. Economists attribute the discrepancy to different methodologies.

Another category covering prescription and nonprescription drugs rose 1.2 percent from July, the most in records dating to 2009. Health insurance costs rose 1.1 percent, the fastest pace since February.

Bloomberg survey estimates for the consumer price index ranged from no change to a gain of 0.2 percent.

The consumer price gauge increased 1.1 percent in the 12 months ended in August, after a 0.8 percent year-over-year advance the prior month.

The month-over-month gain in the core CPI measure follows a 0.1 percent gain in July. It increased 2.3 percent from August 2015, after rising 2.2 percent in the prior 12-month period.

The median projection in the Bloomberg survey was for the core gauge to rise 0.2 percent from the previous month, and to climb 2.2 percent from the prior year.

Preferred Index

The Fed’s preferred gauge of inflation, which is the Commerce Department’s PCE measure, hasn’t matched the central bank’s 2 percent goal since April 2012. The core index rose 1.6 percent in July from a year earlier.

“It’s still going to be a long haul to get to the Fed’s inflation target,” said Price of Ameriprise. “They’re likely to wait a bit longer” beyond next week, he said.

Energy and food costs were both little changed in August. Americans also paid roughly the same prices for new automobiles. Clothing prices increased 0.2 percent.

Airfares decreased 0.1 percent, following a 4.9 percent drop in July.

The CPI is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers prices consumers pay for services from medical visits to airline fares, movie tickets and rents.

The cost of living took more of Americans’ paychecks in August, a separate report from the Labor Department showed Friday. Hourly earnings adjusted for inflation fell 0.1 percent from the prior month. They were up 1.3 percent over the past 12 months.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE