U.S. consumer inflation accelerated during August as gasoline prices rebounded following two months of declines.

The Bureau of Labor Statistics reported Sept. 11 that its Consumer Price Index increased a seasonally adjusted 0.4% from July, following July’s 0.1% increase. Prices rose 3.4% year-over-year, unchanged from July. Both headline readings matched economists’ expectations.

Meanwhile, core CPI, which excludes food and energy, increased 0.3% month-over-month after July’s 0.2% gain, exceeding forecasts for another 0.2% increase. Annual core inflation eased to 2.4% from 2.5%, matching expectations.

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Energy prices climbed 2.1%, reversing July’s 1.5% decline. Gasoline rose 3.9% and accounted for more than one-third of August’s overall monthly CPI increase. Fuel oil jumped 10.1%, while natural gas and electricity declined 1.1% and 0.2%, respectively.

Shelter increased 0.3%, compared with July’s 0.1% gain. Food prices edged up 0.1%, reflecting unchanged grocery prices and a 0.3% increase for food away from home.

Airline fares rose 2.7%, communication prices increased 2.3% and lodging away from home climbed 2.4%. Conversely, medical care declined 0.2% and motor vehicle insurance fell 0.8%.

Year-over-year, energy prices increased 16.3%, including gains of 27.4% for gasoline and 52.0% for fuel oil. Shelter rose 3.0% and food increased 2.7%.

MDM Analysis

August’s hotter-than-expected monthly core CPI increase strengthens the case for a rate hike when the Federal Open Market Committee concludes its meeting Sept. 16. Despite easing annual core inflation, renewed energy increases risk spreading through transportation costs, goods prices and inflation expectations. Policymakers may see tighter borrowing conditions as necessary to restrain demand and prevent those pressures from becoming entrenched.