US consumer inflation tame and labour market still tightening

WASHINGTON: US consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.
A strong labour market could, however, complicate matters for the Fed amid divisions among officials on the appropriate response to the rising headwinds to growth. Other data on Thursday showed an unexpected decline in the number of Americans filing claims for unemployment benefits last week.
Layoffs remain low even as companies are becoming hesitant to hire more workers because of a slowing economy. The unemployment rate is near a 50-year low of 3.5 per cent.
The longest economic expansion on record, now in its 11th year, is under threat from the 15-month-old US-China trade war, slowing growth overseas and a likely disorderly exit from the European Union by Britain. The trade war has undermined business investment and helped to drive manufacturing into recession. Growth is also being restricted by the fading stimulus from last year’s $1.5 trillion tax cut package.
“The downside risks from slower global growth, trade disruptions and the contraction in US manufacturing could carry more weight among Fed officials,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio. “The odds of a rate cut in October are moving up with domestic economic data turning softer in recent months.”
The Labour Department said the flat consumer price index last month was the weakest reading since January and came as increases in the cost of food and rents were offset by decreases in the prices of gasoline and used cars and trucks. The CPI edged up 0.1 per cent in August. In the 12 months through September, the CPI increased 1.7 per cent after advancing by the same margin in August.
Economists polled by Reuters had forecast the CPI nudging up 0.1 per cent in September and rising 1.8 per cent on a year-on-year basis.
Excluding the volatile food and energy components, the CPI climbed 0.1 per cent after gaining 0.3 per cent for three straight months. The so-called core CPI was restrained by moderate gains in healthcare costs, as well as declines in apparel, new motor vehicles and communications prices. In the 12 months through September, the core CPI increased 2.4 per cent, matching August’s rise.
The report came on the heels of data on Tuesday showing the biggest drop in producer prices in eight months in September.
Minutes of the US central bank’s September 17-18 policy meeting published on Wednesday showed that while officials agreed risks to the economy “had increased somewhat,” they were divided on what the appropriate response should be.
The minutes showed “several” favored keeping rates unchanged at that meeting as they felt the policy stance was “already adequately accommodative,” while a “couple” preferred a 50 basis point rate cut.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0 per cent inflation target. The core PCE price index rose 1.8 per cent on a year-on-year basis in August and has fallen short of its target this year.
Economists said based on the CPI and PPI data, they expected the monthly core PCE price index to tick up 0.1 per cent in September, matching August’s gain. That would lower the annual increase in core inflation to 1.7 per cent from 1.8 per cent in August.
— Reuters