U.S. consumer prices recorded their biggest drop in eight
months in September as the cost of gasoline fell, but a steady pick-up in the
prices of other goods and services suggested inflation was poised to rise. There
was good news on the labor market, with other data on Thursday showing new
applications for unemployment aid fell back to a 42-year low last week. The
very low level of layoffs and gradually firming underlying inflation could keep
the door open to an interest rate increase from the Federal Reserve this year.
The Labor Department said its Consumer Price Index fell 0.2
percent last month after slipping 0.1 percent in August. In the 12 months
through September, the CPI was unchanged for the first time in four months. It
rose 0.2 percent in August. Stripping out food and energy costs, prices rose
last month. The so-called core CPI gained 0.2 percent after ticking up 0.1
percent in August. In the 12 months through September, the core CPI increased
1.9 percent, the largest gain since July 2014, after advancing 1.8 percent in
The Fed tracks the personal consumption expenditures price
index, excluding food and energy, which is lower than the core CPI. Low
inflation, which has persistently run below the U.S. central bank's 2 percent
target, is a major hurdle to an interest rate hike this year. Stocks on Wall
Street rose on the data, snapping a two-day losing streak. Prices for U.S.
government debt fell, while the dollar rose against a basket of currencies.
Top Fed officials are divided on whether to tighten monetary
policy, with governors Lael Brainard and Daniel Tarullo this week urging
against raising interest rates. In contrast, Fed Chair Janet Yellen and Vice
Chair Stanley Fischer have recently said they support raising rates this year. Expectations
of a lift-off in the U.S. central bank's short-term interest rate have been
dealt a blow by an abrupt slowdown in job growth in the last two months and
softening economic activity because of a strong dollar, lower oil prices and a
weakening global economy.
The stumble in job growth, however, is at odds with the very
low levels of layoffs. In a second report, the Labor Department said initial
claims for state unemployment benefits fell 7,000 to a seasonally adjusted
255,000 for the week ended Oct. 10.
Claims were last at this level in July, which was the lowest
since November 1973. Nonfarm payrolls growth in August and September averaged
139,000, the weakest two-month rise since January last year. The slowdown is
puzzling given job openings are at record highs. Some economists say the
step-down in hiring is because employers cannot find qualified workers for the
open jobs. The four-week moving average of claims, considered a better measure
of labor market trends as it irons out week-to-week volatility, fell to the
lowest level since December 1973.
The inflation report showed gasoline prices fell 9.0
percent, the biggest drop since January, after declining 4.1 percent in August.
Food prices increased 0.4 percent, the largest increase since May 2014, and
rents increased 0.4 percent. Expensive food and accommodation could hurt
consumer spending, even with cheaper gasoline. The cost of medical care,
household furnishings and personal care products increased last month. However,
apparel prices fell as did the cost of new vehicles and used cars and trucks.
While the inflation and jobless claims data allayed some of
the concerns about the economy, manufacturing remains a weak spot. Separate
reports showed factory activity in New York state and the mid-Atlantic region
contracted further in October.
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