Gasoline, rents boost US inflation; weekly jobless claims fall

WASHINGTON: US 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.
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 labour 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 per cent last month after edging up 0.1 per cent in July. August’s gain was the largest in seven months and lifted the year-on-year increase in the CPI to 1.9 per cent from 1.7 per cent in July.
Economists had forecast the CPI rising 0.3 per cent in August and climbing 1.8 per cent year-on-year.
The Labor Department said Harvey had a “very small effect on survey response rates in August.” Gasoline prices surged 6.3 per cent, 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 per cent in August. The increase, which followed four straight monthly increases of 0.1 per cent, was driven by a 0.4 per cent jump in the cost of rental accommodation. Rents gained 0.2 per cent in July.
Owners’ equivalent rent of primary residence rose 0.3 per cent in August after advancing by the same margin in July.
In the 12 months through August, the so-called core CPI rose 1.7 per cent, 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 US central bank’s 2 per cent 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 per cent from 41.3 per cent on Wednesday, according to CME Group’s FedWatch programme.
Prices for US 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 September 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 labour 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 September 9.
Claims have now been below 300,000, a threshold associated with a robust labour market, for 132 consecutive weeks. That is the longest such stretch since 1970, when the labour 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. — Reuters