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US consumer inflation muted; labour market tightening

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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.

[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. 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 economic expansion, 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 US$1.5 trillion tax cut package.

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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 energy 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 moderated 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 Fed's Sept 17-18 policy meeting published on Wednesday showed officials viewed risks to the longest economic expansion on record "had increased somewhat."

The Fed cut rates in September after reducing borrowing costs in July for the first time since 2008. Economists expect another rate cut at the Fed's Oct 29-30 policy meeting.

The central bank 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.

REUTERS