Mixed signs in October on consumer price outlook

Washington

AN UNDERLYING measure of US 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 per cent from the prior month, according to a Labor Department report Wednesday, the fastest gain in three months and in line with projections.

The gauge rose 2.1 per cent from October 2017, slightly short of the median estimate of economists for a 2.2 per cent increase, which was also the gain in September.

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 a rebound in used-car prices, and the figures may potentially be seen as validating a recent decline in inflation expectations in financial markets.

The broader consumer-price index rose 0.3 percent in October, matching estimates, after a 0.1 percent gain the prior month. It was up 2.5 percent from a year earlier, also in line with forecasts.

The biggest gain in energy prices since January boosted the headline index. The CPI report showed petrol prices rose 3 per cent from the prior month on a seasonally adjusted basis.

Investors expect the Fed to go ahead in December with this year's fourth interest-rate hike, and policy makers 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 CPI a key report at this time.

A separate report released on Wednesday by the Labor Department showed inflation-adjusted hourly earnings fell 0.1 per cent in October from the prior month. They were up 0.7 per cent from a year earlier.

While the impact of tariffs is yet to show up in a big way in the CPI figures, economists say that may change as 10 per cent tariffs on US$200 billion of Chinese imports are due to rise to 25 per cent in January in the absence of a breakthrough in negotiations.

The Trump administration has also threatened to escalate tariffs to cover all imports from China. BLOOMBERG