ICS Magazine

U.S. Core Inflation Hotter Than Expected

October 19, 2004
WASHINGTON (Reuters) - U.S. consumer prices rose an as-expected 0.2 percent last month, a government report showed on Tuesday, but a sharp jump in lodging costs helped push core inflation up at its fastest pace in five months.

A separate report showed a more sluggish pace of groundbreaking for new homes in September than had been expected, but a bigger-than-anticipated gain in permits for future activity.

A 0.4 percent drop in energy prices in September, the third straight monthly decline, helped temper the rise in the consumer price index, the most widely used gauge of U.S. inflation, the Labor Department said.

While food prices held steady, the core CPI, which strips out volatile food and energy costs, climbed 0.3 percent, the biggest gain since April.

Economists on Wall Street had expected both the overall index and the core measure to advance 0.2 percent.

Bond prices slipped and the dollar firmed against the euro on the view a faster underlying pace of inflation might convince the Federal Reserve to keep pushing short-term interest rates up.

Analysts said ahead of the report it would understate the inflation environment because it would not reflect a recent sharp rise in oil prices, an increase that has already been reflected in higher gasoline costs.

In September, gasoline prices rose a mild 0.1 percent, the report showed. Fuel oil costs shot up 2.1 percent, but natural gas prices slid 3.1 percent and electricity costs held steady.

The department said a 2.9 percent jump in the cost of lodging -- such as hotels and college dorms -- accounted for about three-quarters of the September acceleration in the core CPI, which had risen only 0.1 percent in each of the prior three months. Lodging costs had fallen 1.7 percent in August.

Despite the pickup, core prices have risen at only a 1.8 percent annual rate over the past three months, the slowest quarterly pace this year.

The department said the cost of housing rose 0.2 percent in September, the same as in August and July. In addition, apparel costs were unchanged after two monthly drops, while the price of medical care rose 0.3 percent after a 0.2 percent gain in August.