Inflation remains tame; rents and medical costs tick up

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U.S. consumer prices barely rose in August as the cost of energy fell, but an increase in rents and medical care costs pointed to a stabilization in underlying inflation that could allow the Federal Reserve to start trimming its bond purchases.

The Labor Department said on Tuesday its Consumer Price Index edged up 0.1 percent in August after rising 0.2 percent in July. In the 12 months through August, the increase in the CPI slowed to 1.5 percent after advancing 2.0 percent in July.

Economists polled by Reuters had expected consumer prices to rise 0.2 percent last month and increase 1.6 percent from a year-ago.

Stripping out the volatile energy and food components, the so-called core CPI rose 0.1 percent after increasing by 0.2 percent in each of the past three months. Rents and medical care accounted for most of the increase in the core CPI.

August Consumer Price Index up 0.1%
August Consumer Price Index up 0.1%

That took the increase over the past 12 months to 1.8 percent, the largest increase since March. The core CPI had gained 1.7 percent in July.

The steady rise in the year-on-year core CPI could ease concerns among some Fed officials about the disinflationary trend becoming entrenched.

The inflation data was released as policymakers prepared to meet on Tuesday and Wednesday to deliberate on monetary policy.

Economists generally expect the U.S. central bank to announce a scaling back of the $85 billion in bonds it has been buying a month to hold interest rate down at the end of the two-day meeting.

--By Reuters