U.S. Inflation Slows in August Even as Workers' Wages Accelerate

U.S. inflation slowed more than expected in August, the Labor Department said Thursday, Sept. 13, just days after a separate report showed worker wages accelerated during the month. 

The Consumer Price Index rose 2.7% from a year earlier, the Labor Department's Bureau of Labor Statistics said in a statement. That pace was slower than the 2.8% average estimate of economists in a survey by data provider FactSet. During the previous month, prices rose at a 2.9% clip.   

A report last week showed that average hourly earnings in August rose 2.9% from a year earlier, the fastest in nine years. Traders speculated then that the higher wages might ultimately lead to faster price increases, yet Federal Reserve officials led by Chairman Jerome Powell have said they expect a slowdown in the inflation rate during the second half of this year, supporting their case for continuing to raise interest rates at a gradual pace -- instead of hiking them more aggressively. 

Excluding the cost of food and energy whose prices can be volatile, the 12-month inflation rate for August was 2.2%, down from 2.4% in July.   

"One month is not a trend, but it plays to the Fed's view that the runup in inflation in the earlier part of this year is going to reverse itself," said Steve Blitz, chief U.S. economist at the forecasting firm TS Lombard. 

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President Donald Trump's tax-cut-fueled economy is booming, pushing the U.S. unemployment rate close at an 18-year low, though at the cost of a widening federal budget deficit that has ballooned the national debt past $21 trillion.

Critics of the tax cuts argue that the benefits primarily flowed to the wealthiest people, but the recent uptick in wages showed that workers, on average, were finally getting ahead relative to the cost of living.

The Fed has been raising borrowing costs since 2015 to keep inflation from surging. Economists widely expect the central bank to increase interest rates by a quarter percentage point at a meeting later this month, the third hike this year. 

The August inflation report likely will do little to change traders' expectations for future Fed rate increases, said Charlie Ripley, senior strategist at Allianz Investment Management. 

The Standard & Poor's 500 Index of U.S. stocks climbed 0.6% Thursday to 2,903, while the yield on the 10-year U.S. Treasury note was unchanged at 2.96%. 

"It was a pretty benign report," said Gibson Smith, founder and chief investment officer at the Denver-based money manager Smith Capital Investors, which specializes in bonds and other income-oriented investments. 

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