The Economy: Cost of living rises more than expected in August

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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 closer 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.

Inflation pressure grows

"Inflation pressures are building gradually," Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida, said before the report. "There's really not much inflation in goods. Where we're seeing price pressures is in rents and health care. Wage pressures are building."

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

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 on record. 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.

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.

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.


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