U.S. Inflation Slows in August, Remains Above Federal Reserve Target

WASHINGTON -- Inflation slowed a bit last month as Americans ramped up their spending, though price gains remained elevated and are a challenge for many voters as the midterm elections approach.

The Commerce Department said Wednesday that consumer prices rose 3.4% in August compared with a year earlier, below the 3.7% economists had forecast. On a monthly basis, prices climbed 0.3%, up from 0.1% in July, a sign prices are still running hot.

Excluding the volatile energy and food categories, inflation also came in lower than expectations, rising 3% in August from a year ago. And from July to August, core prices rose just 0.2%, up from 0.1% the previous month.

Inflation remains above the Federal Reserve's 2% target and the monthly increase in August suggests it isn't moving back toward the target anytime soon. The Fed lifted its key short-term interest rate two weeks ago for the first time in three years to combat inflation and most economists expect it will do so at least once more this year, possibly as soon as late next month.

High prices have cast a pall on the U.S. economy, even as growth is mostly solid and the unemployment rate is low.

U.S. markets bounced higher immediately on the new inflation reading, with investors betting that an expected interest-rate hike from the U.S. Federal Reserve might be delayed.