Inflation may finally be getting back on track to reach the Federal Reserve’s goal, as the U.S. cost of living accelerated following a weak stretch, Labor Department data showed Thursday.
Highlights of Consumer Price Index (August)
The 0.2 percent rise in the core gauge ends a five-month streak of weaker-than-expected readings, and may soothe some concerns that inflation is slowing more broadly, though it will take more readings to determine whether the pickup can be sustained. The increase in the lodging category indicates the earlier decline in the sector was transitory.
Energy prices rose by the most since January and may reflect some impact from Hurricane Harvey. CPI data is collected throughout the month, and since the storm occurred in late August, the Bureau of Labor Statistics expects most of the data to come from before the storm, BLS economist Steve Reed said Wednesday. Data collection was disrupted in two of the 87 U.S. urban areas where prices are gathered.
Economists have said headline inflation measures could remain elevated for several months as the data more fully incorporate the fallout from Harvey and Irma.
The improvement, were it to persist, would make it more likely that the Fed will raise interest rates in December. Policy makers meeting next week are expected to keep rates on hold while announcing the start of a gradual process to shrink their $4.5 trillion balance sheet.
Over time, businesses may get more pricing power as household spending climbs, while the steady labor market, the weakening dollar and improving global demand would also help to boost inflation.
The Fed’s preferred gauge of inflation, a separate Commerce Department figure based on consumer purchases, has matched or exceeded the central bank’s 2 percent goal in only two months of the past five years. Some Fed officials focus on the measure excluding food and energy, which is also below their target.
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