Consumer prices rose 0.2% in August; yearly inflation falls to three-year low

Sept. 11 (UPI) -- Consumer prices rose slightly in August as the annual inflation rate dropped to its lowest level since 2021, the Bureau of Labor Statistics reported Wednesday.

The monthly August figure rose 0.2%, in line with the forecast by Dow Jones economists while the annual inflation CPI figure of 2.5% was just under the predicted 2.6% over the past 12 months. The CPI is one of the inflation gauges closely watched by the Federal Reserve in determining when, or if, it would adjust interest rates.

Housing continued to be one of the main drivers of the overall CPI increase with the shelter index increasing 0.5% in August. Food costs increased by 0.1% in August, cutting in half the 0.2% rise in July.

The cost of energy was the leading contributor to slowing inflation, with its prices tumbling 0.8% in August after prices were idle in July. The index for "core" items, excluding more volatile food and energy sectors, rose 0.3% in August, a jump from the 0.2% they rose in July.

While the 12-month index increase for all items was the smallest since February 2021, the core index rose to 3.2%.

Those core index numbers made some economists nervous.

"This isn't the CPI report the market wanted to see," Seema Shah, chief global strategist at Principal Assets Management, told CNBC. "With core inflation coming in higher than expected the Fed's path to a 50 basis point cut has become more complicated.

"The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on today's CPI report as evidence that the mile of inflation needs to be handled with care and caution -- a formidable reason to default to a 25 basis point reduction."

As of 10:40 a.m. EDT on Wednesday the Dow Jones Industrial Average was down 664.46 points following the release of the report.