Inflation decelerated marginally last month as Americans escalated their expenditure, although prices remain elevated and constitute a challenge for numerous voters set to head to the polls for midterm elections in just over a month.

Consumer prices advanced 3.4% in August relative to the same month a year earlier, the Commerce Department reported Wednesday, falling short of the 3.7% economists had anticipated.

On a monthly basis, prices rose 0.3%, up from 0.1% in July, signalling that prices remain elevated.

Excluding the volatile energy and food categories, inflation likewise fell short of expectations, rising 3% in August from a year earlier.

And from July to August, core prices increased by a mere 0.2%, up from 0.1% the previous month.

Many economists had feared that core prices would climb more rapidly on a month-to-month basis.

U.S. markets rallied sharply on the new inflation reading, as investors wagered that an anticipated interest-rate hike from the U.S. Federal Reserve could be postponed.

Even so, inflation continues to exceed the Federal Reserve’s 2% target, and the monthly increase recorded in August indicates that it is unlikely to return toward the target in the near future.

Two weeks ago, the Fed raised its key short-term interest rate for the first time in three years in an effort to curb inflation, and most economists anticipate that it will do so at least once more this year, potentially as early as late next month.

“Inflation is trending downward, yet it remains considerably above their target and is not showing any further improvement either,” Bill Adams, chief U.S. economist at Fifth Third Commercial Bank, said in an email.

Wednesday's report addressed a pivotal inflation metric closely monitored by the Fed, referred to as the personal consumption expenditures price index.

It bears resemblance to the more prominent consumer price index, which had been published earlier this month.

High prices have cast a pall on the U.S. economy, even though 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.

Americans’ paychecks are on an upward trajectory, yet they are not keeping pace with the rising cost of goods.

July's inflation rate was initially reported at 3.7%, but the government revised it down to 3.4% after updating how it measures price changes in several categories, including investment management, computer software and accessories, and legal services.

For example, the government previously gave a heavy weighting to certain computer accessories whose prices had jumped because of outsized demand from the AI buildout.

The revisions lowered that weighting, so the higher prices for some computer equipment are not driving up this measure of inflation as much.

Despite the elevated prices, Americans accelerated their spending last month, according to the government, with expenditure surging 0.9% from July to August, a marked increase from a mere 0.1% the previous month.

A portion of that upsurge was likely propelled by wealthier Americans capitalizing on their gains from elevated stock prices, a recent JPMorgan report suggests.

Meanwhile, other consumers may be accruing greater debt in order to sustain their expenditure.

After-tax incomes, adjusted for inflation, remained flat month over month in August, following a 0.3% increase in July, according to the report.

Robust consumer expenditure could stimulate an acceleration in growth.

In a separate report released on Wednesday, the government indicated that the economy grew at an annualised rate of 2.2% during the July-September quarter.

Analysts anticipate that this will accelerate to a 3% pace in the current quarter.