Wednesday, November 13, 2019

U.S. Core Inflation Unexpectedly Decelerates as Rent Costs Cool

© Reuters.  U.S. Core Inflation Unexpectedly Decelerates as Rent Costs Cool© Reuters. U.S. Core Inflation Unexpectedly Decelerates as Rent Costs Cool

(Bloomberg) -- A key measure of U.S. consumer prices unexpectedly cooled in October despite fresh tariffs on Chinese goods, a sign price gains may be slow to reach the Federal Reserve’s target even after interest-rate cuts this year.

The core consumer price index, which excludes volatile food and energy costs, rose 2.3% from a year earlier, a Labor Department report showed Wednesday. That missed economist estimates, while the broader CPI climbed 0.4% and 1.8% annually, with both readings topping forecasts. The core measure was up 0.2% on the month, matching projections.

The subdued annual core reading, driven by a deceleration in rents, follows a third-straight Fed rate cut last month and signals that policy makers face a longer wait to see whether easing since July is spurring faster price gains. Low unemployment and tariffs on Chinese goods may support inflation, though Chinese and American negotiators are moving toward a deal to roll back levies.

President Donald Trump on Sept. 1 added tariffs on $112 billion of Chinese goods, on top of other levies already in effect. He said Tuesday that a deal is close, but the U.S. will “substantially” increase tariffs on China if the first step of a broader agreement isn’t reached.

Rents, Lodging

The measure for rent of primary residence rose 0.1% from a month earlier, the smallest gain since April 2011, Labor figures showed. The broader measure of shelter costs, which make up about a third of total CPI, also climbed 0.1% as prices for hotels and motels, which can be volatile, dropped by a record 4.4%.

Elsewhere, apparel prices fell 1.8% on the month, the most since March. New vehicle prices fell for a fourth month, while used-car prices rose 1.3% after a 1.6% decline in the prior month.

The Labor Department’s CPI tends to run higher than the Commerce Department’s personal consumption expenditures price index, which the Fed officially targets. The core PCE index that policy makers watch for a better read on underlying price trends has shown signs of firming in recent months, though September’s annual gain of 1.7% was below the 2% objective.

Fed Chairman Jerome Powell signaled at his press conference last month that the central bank is taking a pause on interest-rate cuts. Gauges of investors' and consumers' inflation expectations remain near historical lows.

Energy prices climbed 2.7% from the prior month, the most since April. Food costs rose 0.2%, the most since May, while expenses for medical care climbed 1% for the steepest increase in three years.

A separate Labor Department report Wednesday showed average hourly earnings, adjusted for price changes, fell 0.2% in October from a year earlier after no change in September. Higher inflation tends to erode wage gains.

©2019 Bloomberg L.P.

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