Benchmark remains elevated, leaving a rate change by Fed up for speculation.

The per-gallon prices are displayed above the various grades of fuel available at a pump at a QuikTrip gasoline station Sept. 15 in Greenwood Village, Colo. David Zalubowski — The Associated Press.

By CHRISTOPHER RUGABER | The Associated Press

Inflation slowed a bit last month as Americans ramped up their spending, though prices are still elevated and a challenge for many voters that will head to the polls for midterm elections in just over a month.

Consumer prices rose 3.4% in August compared with a year earlier, the Commerce Department said Wednesday, below the 3.7% economist expectations. On a monthly basis, prices climbed 0.3%, up from 0.1% in July, a sign prices that are still running hot.

Excluding the volatile energy and food categories, inflation also came in lower than expected, rising 3% in August from a year ago. And from July to August, core prices rose just 0.2%, up from 0.1% the previous month. Many economists feared core prices would rise more quickly month-to-month.

U.S. markets bounced higher immediately on the new inflation reading, with investors betting that an expected interest-rate hike from the U.S. Federal Reserve might be delayed.

Even so, inflation remains above the Federal Reserve’s 2% target and the monthly increase in August suggests it isn’t moving back toward the target anytime soon. The Fed lifted its key short-term interest rate two weeks ago for the first time in three years to combat inflation and most economists expect it will do so at least once more this year, possibly as soon as late next month.

“Inflation’s trend is lower but still not close to their target and not improving, either,” Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said in an email.

Wednesday’s report covered a key inflation gauge closely watched by the Fed, known as the personal consumption expenditures price index. It is similar to the higher- profile consumer price index, which was released earlier this month.

High prices have cast a pall on the U.S. economy, even as growth is mostly solid and the unemployment rate is low. On Tuesday, the Conference Board’s consumer confidence survey fell to its lowest level since 2014, a period that includes both the Great Recession and a global pandemic.

Despite elevated prices, Americans accelerated their spending last month, the government said, with spending jumping 0.9% from July to August, up from just 0.1% the previous month.

Some of that increase was likely fueled by wealthier Americans cashing in their gains from higher stock prices, a recent report from JPMorgan suggests. Other consumers may be taking on more debt to support their spending.