Gasoline Lights Up US Consumer Inflation; Underlying Trend Steadily Improving

• U.S. consumer prices increased by the most in 14 months in August as the cost of gasoline surged, but the annual rise in underlying inflation was the smallest in nearly two years, likely giving the Federal Reserve cover to leave interest rates unchanged next Wednesday.
• The mixed report from the Labour Department on Wednesday was published a week before the Fed's policy meeting and followed data this month showing an easing in labour market conditions in August. Economists, however, believe officials at the U.S. central bank will continue to signal an additional rate hike this year given the stickiness in services inflation.
• Gasoline prices, which jumped 10.6% in August after climbing 0.2% in July, accounted for more than half of the increase in the CPI. Gasoline prices accelerated in August, peaking at $3.984 per gallon in the third week of the month, according to data from the U.S. Energy Information Administration. That compared to $3.676 per gallon during the same period in July.
• Some economists believe inflation risks are tilted to the upside in the near term, citing rising insurance costs, especially for motor vehicles. Health insurance costs in the CPI report are expected to rise from October through next spring after the Labour Department's Bureau of Labour Statistics, which compiles the report, recently announced changes to its methodology for measuring these costs.

(Source: Reuters)