A gauge of underlying US inflation was below estimates in September as
used-car costs fell and housing rents cooled, signalling that price gains may
remain close to where Federal Reserve policy makers want them amid an outlook
for continued gradual interest-rate hikes.
Excluding volatile food and energy costs, the core consumer price index rose
2.2% in September from a year earlier, the same pace as in August and less than
the 2.3% median estimate of economists surveyed by Bloomberg News, a Labour
Department report showed on Thursday.
The broader CPI slowed to a 2.3% annual gain, the least since February,
compared with forecasts for 2.4%.
The inflation figures partly reflect a 3% monthly decline in prices for used
cars and trucks, the biggest drop in 15 years. While the dollar and 10-year
Treasury yields initially fell after the report, Fed officials will have two
more months of price figures in hand before their December meeting at which
they’re projected to raise interest rates for a fourth time this year amid
solid economic growth and consumer spending, boosted by tax cuts.
“The Fed would like to see inflation stay around 2% but in recent months
it’s been easing some,” said Michael Moran, an economist at Daiwa Capital
Markets in New York.
However, “I wouldn’t change my Fed call” for a December hike based on this
report, he said, as a strong economy and close-to-full employment mean
inflation shouldn’t cool too much.
Benchmark Treasury yields have climbed to multi-year highs this
month amid investor expectations that the Fed will continue raising rates to
the point of eventually restricting growth, and Wednesday’s rout in stocks has
put added focus on economic data.
A market-based gauge of the annual US inflation rate for the next decade -
the 10-year breakeven rate - remains near a four-month high of
2.17% reached last week.
The core CPI rose 0.1% in September from the prior month, compared with the
median estimate of economists for a 0.2% gain. The broader index was also up
0.1%, below forecasts for a 0.2% increase.
Real wages
The slowdown in inflation helped push price-adjusted wages higher in
September. Inflation-adjusted pay rose 0.5% from a year earlier, following a
0.2% increase in August.
Americans’ outlooks for inflation one and three years in the
future were steady in September at 3 percent, according to the New York
Fed’s Survey of Consumer Expectations released on Tuesday.
Fed chairperson Jerome Powell said in a speech last week that
inflation is roughly at the central bank’s 2 percent objective and “the
outlook of forecasters inside and outside the Fed is for more of the same.”
Besides the drop in used-car prices, costs for new vehicles fell 0.1%, the
first decline since April.
Categories showing increases included shelter, which accounts for about
one-third of the CPI and rose 0.2% from August, the smallest gain in three
months. Owners-equivalent rent, one of the categories designed to track rental
prices, increased 0.2%.
Apparel prices increased 0.9%, the biggest gain since February, after a 1.6%
monthly drop in August that was the most in almost seven decades. Airfares
rose 1%.
Seasonally adjusted gasoline prices decreased 0.2% in September from the
prior month, following a 3% increase.
The Fed’s preferred gauge of inflation - a separate consumption-based figure
from the Commerce Department - has been just above the central bank’s 2 percent
goal in recent months, and the figure tends to run slightly below the Labour
Department’s CPI. September numbers are due on October. 29.
“It’s a benign number,” Constance Hunter, chief economist at KPMG, said on
Thursday on Bloomberg Television. “The Fed has said they’re going to do one
more this year, more or less, and then three next year. I think that’s
completely on track.”
A separate Labour Department report on Thursday showed filings for
unemployment benefits ticked up last week while remaining near the lowest level
since 1969.
Initial jobless claims rose 7 000 to 214 000, with North Carolina and South
Carolina still reflecting the impact of Hurricane Florence, according to the
report, which may also indicate volatility around the Columbus Day holiday.
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