Consumer prices up 3.8% from a year ago, biggest rise since 2008

On a day when the Federal Reserve is busy working with other major central banks to keep the European financial system from imploding, the Fed got some bad news on the economic homefront: U.S. consumer prices were up more than expected in August, lifting the year-over-year inflation rate to the highest level in three years.

The Consumer Price Index rose 0.4% in August from July, seasonally adjusted. That was double the 0.2% rise that economists had expected in a Bloomberg News survey.

Measured from a year earlier the CPI was up 3.8% in August, the biggest year-over-year gain since September 2008 -- just before inflation pressures eased as the economy crumbled.

Price gains last month were “broad-based, with continuing increases in the indexes for gasoline, food, shelter and apparel,” the Bureau of Labor Statistics said in its monthly report.

Food prices overall were up 0.5% last month after a 0.4% rise in July. Energy costs climbed 1.2% in August, though that slowed from a 2.8% jump in July.

Apparel costs were up 1.1% last month, used-car prices jumped 0.9% and medical-care services rose 0.3%.

The “core” CPI, excluding food and energy prices, rose 0.2% last month from the previous month, in line with economists’ forecasts. But that was a slight acceleration from July, and lifted the year-over-year core inflation rate to 2.0% -- the highest since November 2008.

The August price report “reinforces the view that the ‘soft patch’ in economic growth this spring has not alleviated the ongoing rise in headline and core inflation, despite a brief respite in energy and commodity prices,” said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

The big question now: Is the CPI report enough to give the Fed pause before launching another monetary stimulus program to bolster the struggling economy?

Policymakers will meet Tuesday and Wednesday, and many on Wall Street are betting that the Fed will commit to a new plan of buying longer-term Treasury bonds to pull long-term rates in general lower.

The yield on the 10-year T-note jumped to 2.08% Thursday from 1.99% on Wednesday. That could reflect doubts about a Fed stimulus move, or it could just indicate that some investors are moving out of Treasuries and into stocks, with the equity market up for a fourth straight day.

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-- Tom Petruno

Photo: A grocery shopper in New York. Credit: Justin Lane / EPA