U.S. consumer prices rose marginally in August, but underlying inflation showed some stickiness, which could discourage the Federal Reserve from delivering a half-point interest rate cut next week.

The consumer price index increased 0.2% last month after climbing 0.2% in July, the Labor Department's Bureau of Labor Statistics said on Wednesday. In the 12 months through August, the CPI advanced 2.5%. That was the smallest year-on-year rise since February 2021 and followed a 2.9% increase in July.

Economists polled by Reuters had forecast the CPI gaining 0.2% and rising 2.6% year-on-year. Though inflation remains above the U.S. central bank's 2% target, it has slowed considerably, allowing policymakers to focus more on the labor market in their quest to sustain the economic expansion.

Government data last week showed nonfarm payrolls increasing below expectations in August but the unemployment rate falling to 4.2% from near a three-year high of 4.3% in July, reducing the odds of a 50 basis point rate cut and boosting the chances of a quarter-point reduction.

The labor is cooling amid a significant moderation in hiring, reducing the risks of inflation reigniting.

Early on Wednesday, financial markets saw a roughly 29% probability of a 50 basis points rate cut at the Fed's Sept. 17-18 policy meeting, according to CME Group's FedWatch Tool. The odds of a quarter-point rate reduction were around 71%.

The central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023.

Annual consumer price growth has slowed considerably from a peak of 9.1% in June 2022 as higher borrowing costs curb demand.

Excluding the volatile food and energy components, the CPI climbed 0.3% in August after rising 0.2% in July. In the 12 months through August, the so-called core CPI increased 3.2%. That followed a 3.2% gain in July.

Some economists cautioned that lingering stickiness in core inflation argued against a half-point rate cut next Wednesday.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)