US inflation picks up after 5-month weakness

Policymakers meeting next week are expected to keep rates on hold

by BLOOMBERG

WASHINGTON • Inflation may finally be getting back on track to reach the US Federal Reserve’s (Fed) goal, as the US cost of living accelerated following a weak stretch, Labour Department data showed yesterday.

Consumer price index (CPI) increased 0.4% month-on-month (MoM) (estimate 0.3% gain) after 0.1% rise the prior month; rose 1.9% year-on-year (YoY) (estimate 1.8%). Excluding food and energy, so-called core CPI rose 0.2% MoM (matching estimate) after rising 0.1%; up 1.7% YoY (estimate 1.6%) after 1.7% advance. Increase in core index driven by biggest gain in shelter since 2005; lodging category rose by a record, rebounding from a drop that dragged down inflation in the previous month.

The 0.2% rise in the core gauge ends a five-month streak of weaker than expected readings, and may soothe some concerns that inflation is slowing more broadly, though it will take more readings to determine whether the pick-up can be sustained. The increase in the lodging category indicates the earlier decline in the sector was transitory.

Energy prices rose by the most since January and may reflect some impact from Hurricane Harvey. CPI data is collected throughout the month, and since the storm occurred in late August, the Bureau of Labour Statistics (BLS) expects most of the data to come from before the storm, BLS economist Steve Reed said on Wednesday. Data collection was disrupted in two of the 87 US urban areas where prices are gathered.

Economists have said headline inflation measures could remain elevated for several months as the data more fully incorporate the fallout from Harvey and Irma.

The improvement, were it to persist, would make it more likely that the Fed will raise interest rates in December. Policymakers meeting next week are expected to keep rates on hold while announcing the start of a gradual process to shrink their US$4.5 trillion balance sheet.

Over time, businesses may get more pricing power as household spending climbs, while the steady labour market, the weakening dollar and improving global demand would also help to boost inflation.

The Fed’s preferred gauge of inflation, a separate Commerce Department figure based on consumer purchases, has matched or exceeded the central bank’s 2% goal in only two months of the past five years. Some Fed officials focus on the measure excluding food and energy, which is also below their target.

Lodging away from home rose by a record 4.4%; included a 5.1% rise in hotel costs, the most since 1991 Broader shelter costs rose 0.5%; 0.3% increase in owners-equivalent rent, one of the categories designed to track rental prices.

Energy prices rose 2.8% from previous month, reflecting jump in petrol; food costs advanced 0.1%.

The CPI for new vehicles was unchanged, the first month without a decline since January, while prices of used cars and trucks fell 0.2%; air fares dropped 1%. Wireless-phone services fell 0.1%. Expenses for medical care rose 0.1% from the previous month, while 1.8% annual gain was smallest since 1965; 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 0.6% from August 2016, after a 0.7% gain, according to a separate report from the Labour Department.

The CPI is the broadest of three price gauges from the Labour Department because it includes all goods and services. About 60% of the index covers the prices that consumers pay for services ranging from medical visits to airline fares, movie tickets and rents.

Meanwhile, filings for jobless benefits in the US unexpectedly settled back last week, underscoring a resilient labour market even as the Atlantic hurricane season introduces added volatility to the figures, Labour Department data showed yesterday.

Jobless claims decreased by 14,000 to 284,000 (estimate 300,000, range of estimate 240,000 to 465,000). Continuing claims dropped by 7,000 to 1.94m in week ended Sept 2 (data reported with one-week lag). Fourweek average of initial claims rose to 263,250 — highest since August 2016 — from 250,250.

Applications for unemployment insurance last week were estimated for Florida, Georgia and South Carolina — states that were impacted by Hurricane Irma. Meanwhile, Texas reported an unadjusted 11,800 decrease in filings, following a Hurricane Harvey-related 51,683 surge in the week ended Sept 2.

The spike was responsible for breaking total initial claims out of a subdued pattern. Harvey, which made landfall on Aug 25, and Irma will probably continue to add to the swings in the jobless claims data.

Before the storm-related volatility, the overall labour market had been making progress. Employers remain averse to firing people as there’s a shortage of qualified workers. That has kept the underlying trend in jobless claims near the lowest level in more than four decades.

Unemployment rate among people eligible for benefits held at 1.4 % in week ended Sept 2. Claims were also estimated for the Virgin Islands because of Irma. — Bloomberg