Washington | Inflation moved higher last month as the price of gas, groceries, hotel rooms and airfare rose, along with the cost of clothes and used cars.

Consumer prices rose 2.9 per cent in August from a year earlier, the Labour Department said Tuesday, up from 2.7 per cent the previous month and the biggest increase since January. Excluding the volatile food and energy categories, core prices rose 3.1 per cent, the same as in July. Both figures are above the Federal Reserve's 2 per cent target.

The reading is the last data the Fed will receive before its key meeting next week, when policymakers are widely expected to cut their short-term rate to about 4.1 per cent from 4.3 per cent. Still, the figures underscore the challenges the Fed is facing as it experiences relentless pressure from President Donald Trump to cut rates.

Even as inflation has ticked higher, recent government reports have also shown that hiring has slowed sharply in recent months and was lower than previously estimated last year. The unemployment rate ticked up in August to a still-low 4.3 per cent. And weekly unemployment claims rose sharply last week, a sign layoffs may be picking up.

Typically the Fed would cut its key rate when unemployment rose to spur more spending and growth. Yet it would do the opposite and raise rates — or at least keep them unchanged — in the face of rising inflation. Last month, Chair Jerome Powell signalled that Fed officials are increasingly more concerned about jobs, and are likely to cut their rate when they meet next week. Yet stubbornly high inflation could keep the Fed from cutting very quickly.

On a monthly basis, overall inflation accelerated, as prices rose 0.4 per cent from July to August, faster than the 0.2 per cent pace the previous month. Core prices rose 0.3 per cent for the second straight month.