Consumer Prices Barely Rise as Energy Costs Fall

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By Lucia Mutikani

WASHINGTON -- U.S. consumer prices rose marginally in September, painting a weak inflation picture that should give the Federal Reserve ample room to keep interest rates low for a while.

The Labor Department said Wednesday its Consumer Price Index edged up 0.1 percent last month as a rise in food and shelter costs offset a broad decline in energy prices.

The CPI had dropped 0.2 percent in August and economists had expected a flat reading in September.

U.S. Treasury debt prices fell on the slightly firmer reading, while the dollar rose modestly.

"This persistently weak inflation backdrop should continue to provide the key justification for the Fed to keep its policy stance accommodative," said Millan Mulraine, deputy chief economist at TD Securities in New York.

In the 12 months through September, the CPI increased 1.7 percent after a similar rise in August. A separate index that tracks price changes for urban wage earners and clerical workers and is used to make cost-of-living adjustments for Social Security payments rose 1.7 percent in the third quarter from the year earlier.

Inflation has waned in recent months after quickening in the second quarter, in part as a strengthening dollar and slower economic growth in China and the eurozone dampen imported price pressures.

The weak inflation reading could revive concerns at the Fed that price pressures are running too low. That and a recent global equities market sell-off has led investors to push back their expectations for when the U.S. central bank will raise interest rates to late next year. The Fed has kept benchmark overnight rates near zero since December 2008.

Underlying inflation pressures were also muted in September despite increases in shelter and medical care costs.

The so-called core CPI, which strips out food and energy prices, ticked up 0.1 percent last month after being unchanged in August. In the 12 months through September, the core CPI rose 1.7 percent after advancing by the same margin in August.

The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.

In September, energy prices fell for a third straight month, with gasoline prices slipping 1 percent after dropping 4.1 percent in August. Food prices gained 0.3 percent after rising 0.2 percent in August.

Within the core CPI, shelter costs increased 0.3 percent in September after rising 0.2 percent in August. The shelter index was up 3 percent in the 12 months through September, the largest gain since January 2008.

The medical care index increased 0.2 percent, with prices for nonprescription drugs increasing 1.5 percent and hospital services gaining 0.3 percent.

Airline fares declined for a third straight month, while prices for new motor vehicles and apparel were unchanged. Prices for used cars and trucks fell for the fifth straight month.

9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Prices Barely Rise as Energy Costs Fall
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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