Inflation inched higher last month as Americans closed out the summer paying more for both groceries and gasoline.

Consumer prices in August were up 2.9% from a year ago, according to a report Thursday from the Labor Department. That's a sharper annual increase than the previous month, when inflation was clocked at 2.7%.

Prices rose 0.4% between July and August, compared to a 0.2% increase the previous month. Prices for groceries jumped 0.6% while gasoline prices rose 1.9%.

Consumers also saw higher prices for new and used cars, clothing and air fares in August. Stripping out volatile food and energy prices, "core" inflation was 3.1% for the last 12 months.

The Federal Reserve faces a challenge

The continued rise in prices poses a challenge for the Federal Reserve as it weighs what

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