interest rates again next week to support a slowing economy.
Other data on Thursday showed the number of Americans filing applications for unemployment benefits dropped to a five-month low last week suggesting the labor market remains healthy, which should continue to underpin consumer spending even as hiring has cooled. The longest economic expansion on record is under threat from the White House's year-long trade war with China.
Fed Chair Jerome Powell said last week he was not forecasting or expecting a recession, but reiterated the US central bank would continue to act "as appropriate" to keep the expansion now in its 11th year on track. But the firming inflation trend, if sustained, could constrain the Fed's ability to ease monetary policy further.
"Concerns about too-low inflation appear misguided," said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. "The Fed will still cut rates next week to provide added insurance in the event that the trade war escalates, but it might think twice about moving again in October if core inflation shows any further spark."
The Labor Department said its consumer price index excluding the volatile food and energy components gained 0.3% for a third straight month. The so-called core CPI was boosted by a surge in healthcare costs and increases in prices for airline tickets, recreation and used cars and trucks.
In the 12 months through August, the core CPI increased 2.4%, the most since July 2018, after climbing 2.2% in July.
Economists polled by Reuters had forecast the core CPI rising 0.2% in August and up 2.3% on a year-on-year basis.
But a decline in energy prices held back the increase in the overall CPI to 0.1% last month. The CPI gained 0.3% in July. In the 12 months through August, the CPI increased 1.7%, slowing from July's 1.8% advance.
The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index rose 1.6% on a year-on-year basis in July and has fallen short of the central bank's target this year.
Economists expect inflation will accelerate in the coming months and breach the Fed's target in 2020 following the broadening this month of US tariffs on Chinese goods to include a range of consumer goods. Still, the Fed is likely to continue cutting interest rates this year to offset the drag on the economy from the trade war.
The Fed cut rates in July for the first time since 2008.
The trade stand-off has soured business confidence and tipped both US and global manufacturing into recession.
In another report on Thursday, the Labor Department said initial claims for state unemployment benefits declined 15,000 to a seasonally adjusted 204,000 for the week ended Sept. 7, the lowest level since April.
The drop in claims was the largest since May. Robust consumer spending, which is backed by the strong labor market, is driving the economy.
In August, gasoline prices fell 3.5% after rebounding 2.5% in July. Food prices were unchanged for the third straight month. Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2% in August for a second consecutive month.
Healthcare costs jumped 0.7% in August, the largest gain since August 2016, after rising 0.5% in July. They were driven by a 1.4% surge in the price of hospital services, which was also the biggest increase since August 2016.
The cost of health insurance rose by a record 1.9%. There was also a jump in the costs of nonprescription drugs, but prices for prescription medication fell 0.2%.
Apparel prices rose 0.2% after gaining 0.4% in the prior month. Used motor vehicles and trucks prices increased 1.1% in August, rising for a third straight month. Prices for new motor vehicles dipped 0.1%. Prices for recreation increased 0.5%, the most since December 2018. The cost of household furnishings and operations fell after rising for two consecutive months.