WASHINGTON (Reuters) - U.S. consumer prices accelerated in August amid a jump in the cost of gasoline and rental accommodation, signs of firming inflation that boosted the probability of an interest rate increase from the Federal Reserve in December.

A man looks over employment opportunities at a jobs center in San Francisco, California, U.S, February 4, 2010. REUTERS/Robert Galbraith/File Photo

Other data on Thursday showed an unexpected drop in the number of Americans filing applications for unemployment benefits last week. Though the data was impacted by hurricanes Harvey and Irma, the labor market remains healthy with increasing reports of worker shortages in some industries.

August’s inflation readings support the views of some Fed officials that a cooling in price pressures in the past months was temporary.

“Today’s report should ease some of the low inflation concerns among wavering Fed officials, and we continue to expect the leadership will prevail in getting another hike in at the December meeting,” said Michael Feroli, an economist at JPMorgan in New York.

The Labor Department said its Consumer Price Index rose 0.4 percent last month after edging up 0.1 percent in July. August’s gain was the largest in seven months and lifted the year-on-year increase in the CPI to 1.9 percent from 1.7 percent in July.

Economists had forecast the CPI rising 0.3 percent in August and climbing 1.8 percent year-on-year.

The Labor Department said Harvey had a “very small effect on survey response rates in August.” Gasoline prices surged 6.3 percent, the biggest gain since January, after being unchanged in July. Further increases are likely in September after Harvey forced temporary closures of some refineries on the Gulf Coast.

Stripping out the volatile food and energy components, consumer prices increased 0.2 percent in August. The increase, which followed four straight monthly increases of 0.1 percent, was driven by a 0.4 percent jump in the cost of rental accommodation. Rents gained 0.2 percent in July.

Owners’ equivalent rent of primary residence rose 0.3 percent in August after advancing by the same margin in July.

In the 12 months through August, the so-called core CPI rose 1.7 percent, increasing by the same margin for four straight months. While Fed officials are likely to treat the gasoline-driven rise in the CPI as temporary, they could take comfort in the pickup in the monthly core CPI.

The Fed’s preferred inflation measure is the personal consumption expenditures (PCE) price index excluding food and energy. The annual increase in the core PCE has consistently undershot the U.S. central bank’s 2 percent inflation target since mid-2012.

RATE HIKE CHANCES INCREASE

In the wake of the inflation data, the probability of a December rate hike increased to 50.9 percent from 41.3 percent on Wednesday, according to CME Group’s FedWatch program.

Prices for U.S. Treasuries fell, while stocks were largely unchanged after hitting record highs on Wednesday. The dollar slipped against a basket of currencies.

Economists expect the Fed will announce a plan to start reducing its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its Sept. 19-20 policy meeting.

The Fed, however, is expected to delay until December its third rate increase this year because inflation remains low, despite the labor market being near full employment.

In a second report on Thursday, the Labor Department said initial claims for state unemployment benefits declined 14,000 to a seasonally adjusted 284,000 for the week ended Sept. 9.

Claims have now been below 300,000, a threshold associated with a robust labor market, for 132 consecutive weeks. That is the longest such stretch since 1970, when the labor market was smaller. Economists had forecast claims rising to 300,000 in the latest week.

In addition to higher gasoline prices and rents, inflation in August was also lifted by increases in the cost of food, doctor and hospital visits, and prescription medication.

Prices for apparel rose last month as did the cost of household furnishings, motor vehicle insurance and recreation.

“Inflation isn’t dead,” said Chris Rupkey, chief economist at MUFG in New York. “With this steady expansion of the economy in its ninth year bumping up against full employment this is just the time that inflation should start firming.”

But prices for used cars and trucks continued to fall as did the cost of mobile phone services. Price wars by mobile phone service providers have contributed to restraining inflation growth. Airline fares also dropped last month.