UPDATE: Gas and rent boost inflation, but medicare care rises at slowest pace since 1965, CPI shows

09/14/17 10:45 AM EDT

By Jeffry Bartash, MarketWatch

U.S. inflation rises in August, but price pressures still muted

WASHINGTON (MarketWatch) -- Higher housing costs and gas prices socked consumers in August, but the cost of medical care grew at the slowest rate since 1965.

The consumer price index, or cost of living, surged 0.4% last month to mark the biggest increase since January, the government said Thursday (https://www.bls.gov/news.release/cpi.nr0.htm). Economists polled by MarketWatch had forecast a 0.3% increase in CPI.

Gasoline prices shot up in the last month of the summer driving season and they are unlikely to fall as they rapidly as they usually do after heavy damage to major refining operations in the Houston area from Hurricane Harvey.

An index that tracks the cost of shelter -- houses, apartments, hotels -- also posted the biggest monthly increase since 2005. The shelter index rose 0.5%, including a big increase in rents.

The rise in consumer prices in August lifted the yearly increase in inflation to 1.9% from 1.7%, just a shade below the Federal Reserve's 2% target. The Fed officially targets a different but similar measure of inflation.

Another closely watched measure that strips out the volatile food and energy categories show less underlying inflation. The so-called core index rose 0.2% in August, marking the biggest increase in six months. Yet the 12-month core rate remained stuck at 1.7% for the fourth month in a row.

"From a bigger picture perspective, inflation remains relatively subdued," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

What's more, a surprising deceleration in the cost of medical care . Medical care expenses rose just 1.8% in the past 12 months, the smallest increase since 1965. The slowdown was linked to an unusual decline in what doctors were paid, according to the CPI index.

The slower rate of growth could be the result of uncertainty about the fate of the law commonly known as Obamacare. Republicans tried but failed to eliminate the law and the next step is far from clear. Insurers have pulled out of some markets and raised premiums in others, perhaps deterring customers from signing up or using as much health care.

The low rate of inflation despite the tightest labor market in years has confounded the Federal Reserve, which appears likely to hold off until the end of the year before raising a key short-term interest rate that influences the cost of borrowing.

Adjusted for inflation, hourly wages for American workers fell 0.3% in August. In the past year real hourly pay has risen a scant 0.6%.

The Dow Jones Industrial Average fell slightly in Thursday trading, though it recently hit a record high.

-Jeffry Bartash; 415-439-6400; AskNewswires@dowjones.com

 

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09-14-17 1045ET

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