WASHINGTON: Underlying US consumer prices increased in October on the back of a pickup in rents and healthcare costs, bolstering the view that a recent disinflationary trend worrying the Federal Reserve probably had ended.
The rise in the consumer price index, excluding the volatile food and energy categories, reported by the Labor Department on Wednesday likely clears the way for the US central bank to raise interest rates next month.
October’s gain in the so-called core CPI, which measures underlying inflation pressures, could comfort Fed officials concerned that stubbornly low inflation may reflect not only temporary factors but also more persistent developments.
“The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one-offs or more persistent disinflationary forces,” said Sarah House, an economist at Wells Fargo Securities in Charlotte, North Carolina. “The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.”
The core CPI rose 0.2 per cent in October, also lifted by increases in the cost of used cars and trucks, tobacco, wireless phone services, airline fares, education and motor vehicle insurance. It edged up 0.1 per cent in September.
October’s gain lifted the year-on-year increase in the core CPI to 1.8 per cent. The year-on-year core CPI had increased by 1.7 per cent for five straight months. Last month, owners’ equivalent rent of primary residence climbed 0.3 per cent, quickening after September’s 0.2 per cent increase. The cost of hospital services were up 0.5 per cent and prices for doctor visits rose 0.2 per cent.
Economists said the increase in healthcare costs suggested the Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, probably rose 0.2 per cent in October, which would snap five straight monthly 0.1 per cent gains.
That would raise the year-on-year increase in the core PCE price index to 1.4 per cent from 1.3 per cent in September.
“It appears the inflation rut that took hold in the spring may finally be behind us,” said Michael Feroli, an economist at JPMorgan in New York.
The core PCE price index has consistently undershot the Fed’s 2 per cent target for more than five years.
The central bank has lifted borrowing costs twice this year and has projected three rate increases in 2018. The government will publish core PCE price index data later this month. — Reuters
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