BUSINESS

US consumer prices jump 0.6 per cent in August, driven higher by more expensive gas

09/14/2012 08:48 EDT | Updated 11/14/2012 05:12 EST
WASHINGTON - More expensive gas drove up U.S. consumer prices in August by the most in three years. But outside energy, inflation was tame.

The Labor Department said Friday that consumer prices rose a seasonally adjusted 0.6 per cent last month, the first increase since March. Higher gas prices accounted for 80 per cent of the increase. Food prices rose 0.2 per cent.

Excluding the volatile food and energy categories, core prices edged up 0.1 per cent for the second straight month. Rents, medical care and new cars got more expensive, while clothing, furniture and airline fares fell in price.

Mild inflation leaves consumers with more money to spend, which can boost economic growth. Lower inflation will allow the Federal Reserve to stick with programs announced Thursday aimed at lifting the economy. If the Fed is worried that prices are rising too fast, it might have to raise interest rates.

In the past 12 months, prices have increased 1.7 per cent. That's down from a peak of 3.9 per cent in September 2011 and below the Fed's inflation target of 2 per cent.

Core consumer prices rose 1.9 per cent in the past 12 months, the smallest annual increase in a year.

August's prices rose largely because gas prices have jumped in recent weeks. The average price for a gallon (3.7 litres) of gas nationwide was $3.87 on Friday, up 16 cents in the past month.

The modest increase in food prices indicates the drought in the Midwest is not yet pushing up grocery prices. Some economists say that will happen in the comings months.

On Thursday, the Federal Reserve said it would purchase $40 billion of mortgage-backed securities a month until the economy and the job market steadily improve. Fed officials also said they would keep short-term interest rates low even after the economy strengthens.

Hiring has weakened recently after a strong start to the year. Employers added only 96,000 jobs in August, below the 141,000 added in July and far below the average gains of 226,000 in the first quarter.

The unemployment rate fell to 8.1 per cent from 8.3 per cent, but only because the number of people in the work force shrank.

For now, the economy isn't growing fast enough to spur greater job gains. The economy expanded at a 1.7 per cent annual pace in the April-June quarter. That's down from 2 per cent in the first quarter and 4.1 per cent in the final three months of last year.