A gauge of underlying U.S. inflation was below estimates in September as used-car costs fell and housing rents cooled, signaling that price gains may remain close to where Federal Reserve policy makers want them amid an outlook for continued gradual interest-rate hikes.
Excluding volatile food and energy costs, the core consumer price index rose 2.2 percent in September from a year earlier, the same pace as in August and less than the 2.3 percent median estimate of economists surveyed by Bloomberg News, a Labor Department report showed Thursday. The broader CPI slowed to a 2.3 percent annual gain, the least since February, compared with forecasts for 2.4 percent.
The inflation figures partly reflect a 3 percent monthly decline in prices for used cars and trucks, the biggest drop in 15 years. While the dollar and 10-year Treasury yields initially fell after the report, Fed officials will have two more months of price figures in hand before their December meeting at which they’re projected to raise interest rates for a fourth time this year amid solid economic growth and consumer spending, boosted by tax cuts.
“The Fed would like to see inflation stay around 2 percent but in recent months it’s been easing some,” said Michael Moran, an economist at Daiwa Capital Markets in New York. However, “I wouldn’t change my Fed call” for a December hike based on this report, he said, as a strong economy and close-to-full employment mean inflation shouldn’t cool too much.
Benchmark Treasury yields have climbed to multi-year highs this month amid investor expectations that the Fed will continue raising rates to the point of eventually restricting growth, and Wednesday’s rout in stocks has put added focus on economic data. A market-based gauge of the annual U.S. inflation rate for the next decade -- the 10-year breakeven rate -- remains near a four-month high of 2.17 percent reached last week.
The core CPI rose 0.1 percent in September from the prior month, compared with the median estimate of economists for a 0.2 percent gain. The broader index was also up 0.1 percent, below forecasts for a 0.2 percent increase.
Real Wages
The slowdown in inflation helped push price-adjusted wages higher in September. Inflation-adjusted pay rose 0.5 percent from a year earlier, following a 0.2 percent increase in August.
Americans’ outlooks for inflation one and three years in the future were steady in September at 3 percent, according to the New York Fed’s Survey of Consumer Expectations released Tuesday. Fed Chairman Jerome Powell said in a speech last week that inflation is roughly at the central bank’s 2 percent objective and “the outlook of forecasters inside and outside the Fed is for more of the same.”
Besides the drop in used-car prices, costs for new vehicles fell 0.1 percent, the first decline since April.