U.S. Core Inflation Misses Estimates; Energy Boosts Main Gauge

U.S. inflation excluding food and fuel was below estimates for the sixth time in seven months, even as a hurricane-driven spike in energy prices boosted the overall cost of living by the most since January, a Labor Department report showed Friday.

Highlights of Consumer Price Index (September)

  • Consumer price index rose 0.5% m/m (est. 0.6% rise) after 0.4% advance the prior month; up 2.2% y/y (est. 2.3%)
  • Excluding food and energy, so-called core CPI rose 0.1% m/m (est. 0.2% rise), following 0.2% gain; up 1.7% y/y (est. 1.8%)
  • Shelter index up 0.3% after 0.5% gain; prices fall for new and used vehicles, household furnishings and operations
  • Wireless-phone service prices rose 0.4 percent, first gain after 14 straight declines

Key Takeaways

While economists expected an overall pickup in price gains in the aftermath of Hurricane Harvey -- energy costs rose by the most since June 2009 -- the details suggest any broader acceleration in U.S. inflation may need more time to gain traction.

Shelter, which accounts for about one-third of CPI, gave less of a boost to inflation than in August, when the index was affected by outsize swings in hotel rates. Auto prices also dragged down inflation.

The latest data could give some Federal Reserve policy makers pause as officials debate whether to raise interest rates one more time this year, an outcome investors have seen as likely after the Fed generally judged the inflation slowdown this year to be temporary. A separate Commerce Department consumer-inflation measure, preferred by the Fed, is running below the central bank’s 2 percent target, with a 1.4 percent gain in the 12 months through August.

At the same time, a Commerce Department report also released Friday showed U.S. retail sales rose in September by the most in more than two years, as Americans replaced storm-damaged cars and paid higher prices at the gasoline pump. Excluding autos and gas, sales still increased at the second-fastest pace since January.

The Labor Department said Hurricane Irma had a “small impact on data collection” for the CPI in September, affecting some areas in Florida.

Economist’s View

“Energy clearly played a part but overall pressures are still not fast enough to produce a pace of annual inflation that’d suggest we’re that much closer to the Fed’s objective,” said Sam Bullard, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

Other Details

  • Energy prices rose 6.1 percent from previous month; food costs up 0.1 percent
  • The CPI for new vehicles fell 0.4 percent, used vehicles dropped 0.2 percent; air fares fell 0.1 percent
  • Shelter costs reflected a 0.2 percent increase in owners-equivalent rent, one of the categories designed to track rental prices; 1.5 percent increase in lodging away from home
  • Expenses for medical care fell 0.1 percent; these readings often vary from results for this category within the Fed’s preferred measure of inflation due to different methodologies
  • Hourly earnings adjusted for inflation rose 0.7 percent from September 2016, same pace as prior month, a separate report from the Labor Department showed
  • The CPI 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
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