U.S. consumer prices rose more than expected in August as health-care costs recorded their biggest gain in 32-1/2 years, pointing to a steady build-up of inflation that could allow the Federal Reserve to raise interest rates this year.

    The cost of living last month was also pushed up by sustained increases in rents. The uptick in inflation is likely to be welcomed by Fed officials when they gather this week to deliberate on monetary policy, though a rate hike is not expected at that meeting.

    “The economy may not be firing on all cylinders, but growth is enough to spark a little more inflation than we thought. The Fed decision is going down to the wire,” said Chris Rupkey,” chief economist at MUFG Union Bank in New York.

    The U.S. Labor Department said Friday its consumer price index (CPI) increased 0.2 percent last month after being unchanged in July. In the 12 months through August, the CPI increased 1.1 percent after advancing 0.8 percent in the year through July.

    The so-called core CPI, which strips out food and energy costs, rose 0.3 percent last month, the biggest increase since February, after gaining 0.1 percent in July.

    Economists had forecast the CPI nudging up 0.1 percent last month and the core CPI gaining 0.2 percent. The core CPI increased 2.3 percent in the 12 months through August after rising 2.2 percent in the year through July.

    The dollar rallied against a basket of currencies on the data, while prices for U.S. Treasuries were mixed. U.S. stocks were trading lower, with sentiment also hurt by declining oil prices and the U.S. Justice Department’s demand for US$14 billion from Deutsche Bank to settle claims related to sales of mortgage-backed securities.

    The Fed is expected to leave interest rates unchanged next week against the backdrop of a raft of disappointing economic reports for August, including weak retail sales and industrial production as well as a slowdown in job growth.

    A separate report Friday, however, showed consumer sentiment was steady in early September, suggesting retail sales could rebound in the coming months.

    The U.S. central bank has a 2 percent inflation target and tracks an inflation measure that has been stuck at 1.6 percent since March. Fed Governor Lael Brainard said on Monday she wanted to see stronger consumer spending data and signs of rising inflation before hiking rates.

    The Fed raised its benchmark overnight interest rate at the end of last year for the first time in nearly a decade, but has held it steady this year amid concerns over persistently low inflation. Many economists expect the Fed to increase borrowing costs at its December policy meeting.

    (SD-Agencies)