US core inflation below estimates as used-car costs, housing rentals fall

Washington

A GAUGE of underlying US inflation was below estimates in September as used-vehicle 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 per cent in September from a year earlier, the same pace as in August and less than the 2.3 per cent median estimate of economists surveyed by Bloomberg News, a Labor Department report showed on Thursday. The broader CPI slowed to a 2.3 per cent annual gain, the least since February, compared with forecasts for 2.4 per cent.

The moderation in core inflation partly reflects a 3 per cent monthly decline in prices for used cars and trucks, the biggest drop in 15 years. 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.

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 per cent reached last week.

The core CPI rose 0.1 per cent in September from the prior month, compared with the median estimate of economists for a 0.2 per cent gain. The broader index was also up 0.1 per cent, below forecasts for a 0.2 per cent increase.

The slowdown in inflation helped push price-adjusted wages higher in September. Inflation-adjusted pay rose 0.5 per cent from a year earlier, following a 0.2 per cent increase in August.

Americans' outlooks for inflation one and three years in the future were steady in September at 3 per cent, according to the New York Fed's Survey of Consumer Expectations released on Tuesday.

Fed chairman Jerome Powell said in a speech last week that inflation is roughly at the central bank's 2 per cent 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 per cent, the first decline since April.

Categories showing increases included shelter, which accounts for about one-third of the CPI and rose 0.2 per cent from August, the smallest gain in three months. Owners-equivalent rent, one of the categories designed to track rental prices, increased 0.2 per cent.

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 per cent goal in recent months, and the figure tends to run slightly below the Labor Department's CPI. September numbers are due on Oct 29. BLOOMBERG