Inflation slowed slightly last month, even as Americans increased their spending.

Consumer prices rose 3.4% in August compared with a year earlier, the Commerce Department said Wednesday.

That was below the 3.7% that economists had expected.

On a monthly basis, prices climbed 0.3%, up from 0.1% in July.

Core inflation excludes volatile energy and food categories.

It also came in lower than expected.

It rose 3% in August from a year earlier.

From July to August, core prices rose just 0.2%, up from 0.1% the previous month.

Many economists had feared core prices would rise more quickly.

U.S. markets bounced higher on the news.

Investors bet that an expected interest-rate hike from the Federal Reserve might be delayed.

Still, inflation remains above the Fed's 2% target.

The monthly increase in August suggests it is not moving back toward that target anytime soon.

The Fed raised its key short-term rate two weeks ago for the first time in three years.

Most economists expect it will do so at least once more this year, possibly as soon as late next month.

Bill Adams is chief U.S. economist at Fifth Third Commercial Bank.

He said in an email that inflation's trend is lower but still not close to the Fed's target and not improving.

The report covered the personal consumption expenditures price index, a key gauge the Fed watches.

High prices have weighed on the U.S. economy, even as growth is mostly solid and unemployment is low.

Despite elevated prices, spending jumped 0.9% from July to August, up from 0.1% the previous month.

After-tax incomes, adjusted for inflation, were unchanged in August after rising 0.3% in July.