US inflation up sharply on gas price hike
US consumer prices increased by the most in 14 months in August as gasoline prices surged, but the annual rise in underlying inflation was the smallest in nearly two years, potentially allowing the Federal Reserve to keep interest rates unchanged next week. The mixed report from the Laboor Department on Wednesday was published a week before the Federal Reserve's interest rate decision and followed data this month showing an easing in labor market conditions in August. While the data bode well for no change in rates next Wednesday, the stickiness in services inflation keeps a hike on the table in November. "The Fed is likely to keep the federal funds rate unchanged at this month's meeting, but today's report keeps alive the potential for another interest rate hike in coming months," said Phillip Neuhart, director of market and economic research at First Citizens Bank in New York. The consumer price index increased by 0.6 percent last month, the largest gain since June 2022. The CPI had risen 0.2 percent for two straight months. August's increase in the CPI was in line with economists' expectations. Gasoline prices, which jumped 10.6 percent after rising 0.2 percent in July, accounted for more than half of the increase in the CPI last month. Gasoline prices accelerated in August, peaking at US$3.984 per gallon in the third week of the month, according to data from the US Energy Information Administration. That compared to US$3.676 per gallon during the same period in July. The cost of shelter continued to rise, though rents are moderating. Food prices gained 0.2 percent for the second straight month. Grocery food prices rose 0.2 percent, slowing from June's 0.3 percent advance. Consumers paid more for meat, fish and eggs, but dairy products, fruit and vegetables were cheaper. In the 12-months through August, the CPI accelerated 3.7 percent after climbing 3.2 percent in July. While that marked the second straight month of a pick-up in annual inflation, year-on-year consumer prices have come down from a peak of 9.1 percent in June 2022. The Fed has a 2pecent inflation target. "As long as the economy remains resilient and inflation doesn't re-ignite, the market can rally into year-end, once we get past the seasonally weak months of September and October," said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina. (Reuters)