US consumer prices rise on surge in rents; underlying inflation cools

Washington, Oct. 12 (BNA): U.S. consumer prices rose in September as rental costs surged, but a steady moderation in underlying inflation pressures supported financial market expectations that the Federal Reserve would not raise interest rates next month.

The report from the Labor Department on Thursday showed the annual increase in consumer prices excluding the volatile food and energy components last month was the smallest in two years. With the labor market remaining tight, however, reaching the Fed’s 2% inflation target could take some time, making it likely that the U.S. central bank could keep rates elevated for longer.

Higher U.S. Treasury yields and conflict in the Middle East are also seen discouraging the Fed from tightening monetary policy further, Reuters reported.

“The bigger picture is that the trend is still quite encouraging, but the fight continues,” said Olu Sonola, head of U.S. regional economics at Fitch Ratings in New York. “They (Fed officials) may now want to extend the pause to December, given the recent increase in long-term rates.”

The consumer price index increased 0.4% last month. A 0.6% jump in the cost of shelter accounted for more than half of the rise in the CPI. There were increases in the costs of rent and hotel and motel accommodation.

The CPI surged 0.6% in August, which was the largest increase in 14 months. Shelter costs rose 0.3% in August.

Gasoline prices rose 2.1% after accelerating 10.6% in August. Food prices climbed 0.2%, with grocery inflation edging up 0.1%. Consumers paid more for meat, fish and eggs, but prices of cereals and bakery products fell 0.4%, the first drop since June 2021. Prices for fruits and vegetables were unchanged as were those of nonalcoholic beverages.

In the 12 months through September, the CPI advanced 3.7% after rising by the same margin in August. Year-on-year consumer prices have come down from a peak of 9.1% in June 2022. Economists polled by Reuters had forecast the CPI would gain 0.3% and climb 3.6% on a year-on-year basis.

 

WHQ