The U.S. Consumer Price Index rose 0.3% higher in August, beating expectations and assuaging deflation fears.

“Markets’ sanguine attitudes about inflation were tested this morning by a higher-than-expected 0.3% pop in the U.S. consumer price index for August,” says BMO Nesbitt Burns, noting that, excluding food and energy, the CPI was also up 0.3%, temporarily ending progress toward an acceptable 2% core inflation trend. “No support for the deflation theme was seen in these figures, as even core commodities prices rose 0.2%.”

CIBC World Markets says that the usual suspects figured in the rise in core prices, “with non-energy services continuing to run ahead of core goods prices, as the latter are more effectively held in check by global excess capacity in manufacturing. Over the past year, core goods prices have actually fallen. 0.7%.”

“For those caught off base by the higher core price result, here is a list of special factors,” says BMO. “Apparel prices rose 1.1% as the fall season began. Sales results were bad, so these price hikes might not stick. Hotel prices reversed recent declines, with a 1.8% rebound. There were firmer airline fares. Telephone charges rose substantially. Tobacco was up 2.4%. All told, core services prices registered a 0.4% rise and core goods prices jumped to positive territory at 0.2%.”

CIBC says that, “The Fed is certainly not going to put much emphasis on the near-term inflation trend, since they certainly would not judge any of the current price momentum as coming from an overheating in the U.S. economy. The only sector that is truly under demand price-pressures, housing, is one that the Fed needs to stay in gear for its low rate strategy to be effective in bringing the economy out of its slumber.”

“There were no signs of deflation in these figures,” concludes BMO. “At the moment, we regard them as a bump on the road to lower inflation later in the year. However, they should certainly keep the Fed on hold and should end talk that inflation will quickly fall to levels that “justify” even lower government bond yields in North America. We have not even seen our first sub-2% inflation reading yet. Deflation talk is very far-fetched.”