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Rising energy costs pushed U.S. inflation above forecasts in August and threatened to complicate the Federal Reserve’s fight to keep prices under control.

Consumer prices rose 3.7 percent year over year, according to figures released Wednesday by the Bureau of Labor Statistics, up from 3.2 percent in July and beating consensus forecasts of 3.6 percent. On a monthly basis, prices rose by 0.6 percent.

Underlying price pressures were also slightly stronger than expected over the month, but continued to decline year-on-year.

More than half of the monthly increase in price pressures was due to a recent rise in gasoline prices. Saudi Arabia and Russia are again trying to push oil prices to $100 a barrel, and Brent crude is already at a 10-month high at around $92.50.

The reaction on the financial markets was muted: the yield on interest-sensitive two-year government bonds remained almost unchanged and the S&P 500 stock index fell by 0.2 percent.

Roosevelt Bowman, senior investment strategist at Bernstein Private Wealth Management, predicted that “the Fed will largely look to short-term energy spikes when setting monetary policy.”

However, he said the central bank would “keep a close eye” on the potential knock-on effects if the hikes continue.

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Policymakers tend to focus on core inflation numbers, which ignore fluctuating food and energy prices. However, a higher total may weigh on consumption and influence expectations of future price increases.

Core inflation rose a more modest 0.3 percent from the previous month – slightly above the 0.2 percent rate in July and higher than expected due to rising airfare, car rental and vehicle insurance prices.

However, on an annual basis it fell from 4.7 percent to 4.3 percent.

“The key message is that core inflation is still falling,” said Gregory Daco, chief economist at EY. “We knew there would be some upward pressure on energy prices. . .[but]The momentum in the core business is still encouraging.”

The Fed is widely expected to keep interest rates steady at its next meeting on Sept. 19 and 20, after raising rates 11 times since March 2022 in an effort to push inflation back toward its 2 percent target bring.

However, investors are almost unanimous on whether there will be another rate hike later in the year.

Kristina Hooper, chief global market strategist at Invesco, said there were “certainly flaws” in the latest data, but added that they would not be enough to thwart the Fed’s plans for next week.

“I expect the Fed to be a little more hawkish as they indicate that November is still on the table,” she said. “She wants to reserve the right to rise again if she feels it is necessary.”

Several senior officials have signaled their support for a pause, with Dallas Fed President Lorie Logan noting last week that “returning inflation to 2 percent requires a carefully tailored approach — not endless buckets of cold water.”

Labor market figures released this month showed weaker-than-expected wage growth and a rise in the unemployment rate, while separate job vacancies figures showed a sharper-than-expected decline.

Additional reporting by Harriet Clarfelt in New York

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