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 percent 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 percent.

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

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

The Federal Reserve faces a challenge

The continued rise in prices poses a challe

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