US consumer inflation rises; oil prices may slow momentum

WASHINGTON: US consumer prices increased by the most in nine months in October amid gains in the cost of gasoline and rents, pointing to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again next month.
Though overall inflation could slow in the months ahead following a recent slump in oil prices, economists said Fed officials were likely to regard any retreat as temporary and focus on underlying price pressures.
The US central bank, which has a 2 per cent inflation target, left interest rates unchanged last Thursday after a two-day policy meeting. In its policy statement, the Fed noted that annual inflation measures “remain near 2 per cent.”
“Fed officials are likely to look past the swings in energy prices that could slow the overall CPI in coming months to see further upward pressure on underlying prices,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio. “As such, we still expect the Fed to raise interest rates in December.”
The Labour Department said on Wednesday its Consumer Price Index rose 0.3 per cent last month, the biggest gain since January, after edging up 0.1 per cent in September. In the 12 months through October, the CPI increased 2.5 per cent, picking up from September’s 2.3 per cent rise.
Excluding the volatile food and energy components, the CPI climbed 0.2 per cent. The so-called core CPI had gained 0.1 per cent for two straight months. In the 12 months through October, the core CPI increased 2.1 per cent after advancing 2.2 per cent in September.
Economists polled by Reuters had forecast the CPI climbing 0.3 per cent and the core CPI gaining 0.2 per cent in October.
The dollar was weaker against a basket of currencies after touching a 16-month high earlier this week while US Treasury yields fell.
Oil prices have lost more than a quarter of their value since early October amid a surge in supply and increasing concerns about an economic slowdown. The drag on inflation from oil prices is likely to be offset by a tightening labour market, which is spurring faster wage growth.
The unemployment rate is at nearly a 49-year low of 3.7 per cent and annual wage growth recorded its largest increase in 9½ years in October.
“In the medium- to longer-run we believe this increase in wage growth will both push up business costs as well as support demand, leading to firming price inflation,” said Michael Feroli, an economist at JPMorgan in New York. “In the shorter-run, however, the consumer price outlook will be challenged by the stronger dollar and weaker energy prices.”
The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 2.0 per cent for five straight months. Economists believe the core PCE price index slipped just below 2.0 per cent in October. The government will publish the PCE price index data at the end of the month.
— Reuters