An underlying measure of U.S. consumer prices picked up in October while trailing forecasts on an annual basis, offering mixed signs on inflation that will weigh on Federal Reserve discussions over the path of interest-rate increases.
Excluding food and energy, the core consumer price index rose 0.2 percent from the previous month, according to a Labor Department report Wednesday, the fastest gain in three months and in line with projections. The gauge rose 2.1 percent from October 2017, slightly short of the median estimate of economists for a 2.2 percent increase, which was also the gain in September.
Higher prices for gasoline, used autos and housing contributed to the increase.
Inflation is gradually gaining traction, with help from solid household demand and a tight job market, while the tariff war with China may further boost price pressures. At the same time, some of the latest advance reflected quirks such as the rebound in used-car prices, and the figures may potentially be seen as validating a recent decline in inflation expectations in financial markets, as crude oil and equities tumble.
"These are pretty steady inflation prints," with "nothing in here that argues inflation is going to overshoot," said Omair Sharif, senior U.S. economist at Societe Generale. Also, there's little to concern policymakers, so they'll "continue to stay gradual" with interest-rate increases, he said.
The Federal Reserve targets inflation at 2 percent, just enough to encourage consumer spending and economic growth without leading to price increases that could destabilize the economy.
A separate report released Wednesday by the Labor Department showed inflation-adjusted hourly earnings fell 0.1 percent in October from the previous month. They were up 0.7 percent from a year earlier.
The biggest gain in energy prices since January pushed up the broader consumer price index, which rose 0.3 percent in October, matching estimates and following a 0.1 percent gain the previous month. It was up 2.5 percent from a year earlier, also in line with forecasts. The report showed gasoline prices rose a seasonally adjusted 3 percent from September. Expenses for medical care rose 0.2 percent; these readings often vary from results for this category within the Fed's preferred measure of inflation because of different methodologies.
The October advance in the index benefited from some bounce-back from September: Used-car prices rose 2.6 percent, the most since 2009, after posting the biggest monthly drop in 15 years. The measure has been volatile since the Labor Department changed its methodology earlier in 2018.
New car prices, by contrast, weighed on inflation in October, falling 0.2 percent from the previous month, the biggest drop since April. Price gauges for communication, recreation and personal care also declined. Meanwhile, categories showing relatively slow increases included housing, up 0.2 percent, while apparel costs rose 0.1 percent.
Food prices slipped as fruits, vegetables, cereals and bakery products became cheaper.
The latest report brought the core index's three-month annualized increase to 1.6 percent, the slowest pace in more than a year.
Investors expect the Fed to go ahead in December with this year's fourth interest-rate increase, and policymakers see several more increases in 2019. While the Fed's preferred gauge of inflation is a separate measure related to consumption, those October figures will be released on Nov. 29, making the index a key report at this time.
Policymakers and economists look at core inflation as a better indicator of underlying trends because the broader figures are subject to bigger swings from energy prices.
The Fed-preferred index and its core gauge both rose 2 percent in September from a year earlier; those measures tend to run slightly below the Labor Department's consumer price index.
Based on Wednesday's numbers, Morgan Stanley projected the Fed's preferred core price gauge cooled to a 1.8 percent annual gain in October.
While the effect of tariffs is yet to show up in a big way in the consumer price figures, economists say that may change as 10 percent tariffs on $200 billion of Chinese imports are set to rise to 25 percent in January in the absence of a breakthrough in negotiations. President Donald Trump's administration has also threatened to escalate tariffs to cover all imports from China.
The consumer price index is the broadest of three price gauges from the Labor Department because it includes all goods and services. About 60 percent of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.
Information for this article was contributed by Shobhana Chandra, Jordan Yadoo and Jeff Kearns of Bloomberg News and by Josh Boak of The Associated Press.
Business on 11/15/2018