WASHINGTON (AP) — Inflation slowed a bit last month as Americans ramped up their spending, though price gains remained elevated and are still a challenge for many voters as the midterm elections approach.
Consumer prices rose 3.4% in August compared with a year earlier, the Commerce Department said Wednesday, below the 3.7% that economists had expected. On a monthly basis, prices climbed 0.3%, up from 0.1% in July, a sign prices are still running hot.
Excluding the volatile energy and food categories, inflation also came in lower than expectations, rising 3% in August from a year ago. And from July to August, core prices rose just 0.2%, up from 0.1% the previous month. Many economists feared core prices would rise more quickly on a monthly basis.
U.S. markets bounced higher immediately on the new inflation reading, with investors betting that an expected interest-rate hike from the U.S. Federal Reserve might be delayed.
Still, inflation remains above the Federal Reserve’s 2% target and the monthly increase in August suggests it isn’t moving back toward the target anytime soon. The Fed lifted its key short-term interest rate two weeks ago for the first time in three years to combat inflation and most economists expect it will do so at least once more this year, possibly as soon as late next month.
Wednesday’s report covered a key inflation gauge closely watched by the Fed, known as the personal consumption expenditures price index. It is similar to the higher-profile consumer price index, which was released earlier this month.
High prices have cast a pall on the U.S. economy, even as growth is mostly solid and the unemployment rate is low. Americans’ paychecks are growing but not as quickly as prices, making it harder for many to cover the rising cost of gas, groceries, and other necessities.
Even so, Americans stepped up their spending last month, the government said, as spending jumped 0.9% from July to August.
Healthy consumer spending could fuel a pickup in growth. In a separate report Wednesday, the government said the economy expanded at a 2.2% annual pace in the July-September quarter. Analysts expect that to pick up to a 3% rate in the current quarter.
Inflation for July was previously reported at 3.7% but was revised lower to 3.4% by the government as part of an update in how it measures price changes in several categories, including investment management, computer software and accessories, and legal services.
For example, the government previously put a heavy weight on some computer accessories that have jumped in price because of outsized demand from the AI buildout. The revisions lowered that weight and as a result the higher prices for some computer equipment are not driving up this measure of inflation as much.
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