Inflation cooled slightly last month even as consumers stepped up spending

WASHINGTON (AP) — 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.

markets bounced higher immediately on the new inflation reading, with investors betting that an expected interest-rate hike from the U.S. Many economists feared core prices would rise more quickly on a monthly basis.U.S. Federal Reserve might be delayed.Still, 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.

It is similar to the higher-profile consumer price index, which was released earlier this month.High prices have cast a pall on the U.S. Americans' paychecks are growing but not as quickly as prices, making it harder for many to cover the rising cost of gas, groceries, and other necessities.Even so, Americans stepped up their spending last month, the government said, as spending jumped 0.9% from July to August.Healthy consumer spending could fuel a pickup in growth. In a separate report Wednesday, the government said the economy expanded at a 2.2% annual pace in the July-September quarter.

Analysts expect that to pick up to a 3% rate in the current quarter.Inflation for July was previously reported at 3.7% but was revised lower to 3.4% by the government as part of an update in how it measures price changes in several categories, including investment management, c… Inflation increased less than expected in August, which could see financial markets further reduce the ​odds of another interest rate increase from the Federal Reserve next month.