CPI: Consumer prices rose 0.4% in August; higher than expected

Consumer inflation increased by more than expected in August and more Americans were out of work, according to data released by the U.S. Bureau of Labor Statistics on Thursday.

The agency released the Consumer Price Index, or CPI, summary which showed that prices paid by urban consumers rose by 0.4% in August on a seasonally adjusted basis. When added to the 0.2% increase in July, the overall jump in the last year-to-date was 2.9%, before any seasonal adjustment.

Dow Jones analysts had predicted a 0.3% increase for the month and 2.9% annually.

The BLS reports the index for shelter, which rose 0.4% in August, while the food index went up by 0.5% and index for energy went up by 0.7%, juiced in part by a 1.9% increase in the gasoline index.

Other indexes on the rise include both used and new vehicles, clothing and airline fares. However, the indexes for communication, medical care and recreation did decrease.

The numbers are likely to impact the next decisions made by the Federal Reserve, which is meeting next week in a two-day gathering of the Federal Open Market Committee, or FOMC, the monetary policy-making body of the U.S. Federal Reserve system, to set fiscal policy.

The FOMC typically adjusts the level of short-term interest rates in response to current changes across the economic outlook.

For the Fed, a key factor in their decision-making is the core reading of the overall index minus the food and energy numbers, which lowers the August gain to 0.3% and the 12-month increase to 3.1%, which does meet forecasted expectations.

The Fed generally considers that core to be an accurate gauge of long-term economic trends, with an inflation target of 2%, which is the number it seeks in order to attempt to lock down longer-term inflation prospects.

The Fed is expected to agree to lower rates after the FOMC meeting, which would align with typical policy moves when unemployment is up, but inflation tends to lead to an interest rate raise as a counter-maneuver.

According to the CME FedWatch derivatives marketplace, the probability that the Fed will ease the Federal target rate during the upcoming FOMC meetings is at 88.9%.