US CPI accelerates more than expected in August

US consumer prices rose more quickly than expected in August, boosted by a sharp jump in medical care services.

The headline rate of CPI increased by 0.2% over the month, lifting the annual rate to 1.1%.

So-called 'core' consumer prices, which strip-out the more volatile components such as food and energy, increased by 0.3% month-on-month and by 2.3% from a year ago.

Economists had penciled in a 0.1% month-on-month (1.0% year-on-year) increase in headline CPI and gains of 0.2% and 2.3% in underlying prices.

In July, the headline CPI advanced at a 0.8% year-on-year clip and was unchanged versus June.

Food and energy prices were flat in August, when compared with the previous month, while those of energy services and shelter increased by 0.8% and 0.3% month-on-month, respectively.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, highlighted the 1.0% jump in medical costs - the sharpest rise in 32 years - pointing out how such expenses make up 11% of the core CPI but 19% of the core PCE, arguable the Fed´s preferred inflation gauge.

Rising prices for medical services was more worrisome than that in medical goods, he said, as they tend to reflect wage pressures, which build slowly but then persist.

"Core CPI inflation is now 2.3% y/y, a pace first reached in February, but we're sticking to our long-held view that it will hit 2.5% by December and will rise further next year. Markets and the Fed are too complacent."

"Domestic price pressures remain strong, as slack in the economy has diminished, and we expect core services CPI to continue driving inflation higher. In addition, the direct drag from the 2014 decline in energy prices and dollar strength has abated. As a result, we maintain our view that core CPI will continue to firm further this year, although the July report poses some downside risks to our forecast," Barclays Research´s Blerina Uruci said in a research report sent to clients on the same day.

As of 1350 BST the yield on the benchmark 10-year US Treasury note was off by one basis point to 1.68%, having traded as low as 1.66% immediately prior to the release of the figures.