Fuel prices nudge up key US inflation index in September

 30 Oct 2017 - 17:56

Fuel prices nudge up key US inflation index in September
(FILES) This file photo taken on May 09, 2017 shows a customer preparing to pump gasoline into his car at a gas station in San Anselmo, California. AFP / JUSTIN SULLIVAN

AFP

Washington: A record spike in fuel prices following the summer's back-to-back hurricanes drove up a closely watched US inflation measure in September, but the underlying trend remained weak, according to new data Monday.

The new figures come as the Federal Reserve prepares to begin a two-day meeting on Tuesday, with policymakers widely expected to leave benchmark interest rates untouched but to raise them in December.

Disagreements among policymakers about the timing and pace of rate hikes were unlikely to subside in the face of a fresh batch of weak inflation numbers for September. 

But robust spending figures in the data report pointed to continuing economic expansion.

The Personal Consumption Expenditures price index rose 0.4 percent for the month, up two tenths from August and in line with analyst expectations, according to the Commerce Department report. 

The increase was driven almost entirely by a 6.8 percent spike in the costs of gasoline, electricity, natural gas and similar energy goods and services -- the largest monthly jump in the energy index in more than eight years.

But when volatile food and fuel costs are excluded, the "core" PCE index rose only 0.1 percent for the month, the same level now recorded for five months in a row.

On a 12-month basis, the index grew 1.6 percent, up two tenths from August, but the core index held steady at 1.3 percent, the same as in August and no higher than in October 2015.

Core annual PCE has held below the Fed's two percent target without interruption for more than five years.

Commerce Department officials said hurricanes Harvey and Irma affected consumer spending, but they were unable to isolate the effects given how the underlying data were collected.

Persistently low inflation has bedeviled policymakers during much of 2017, with Fed chair Janet Yellen describing the low price pressures alternately as a "mystery," a "surprise" and a "concern."

Meanwhile, personal incomes rose $66.9 billion for the month as post-hurricane consumer spending gained a full percentage point to reach $136 billion, the largest monthly increase since August 2009, on sales of durable goods like cars.

Savings, on the other hand, fell to its lowest level since August 2008 at $441.9 billion, pointing to strong consumer demand.

"It appears that consumers were already replacing damaged durable household goods in September," Mickey Levy, of Berenberg Capital Markets, said in a research note.

Most members of the Federal Open Market Committee, which sets US monetary policy, appear to favor raising rates in the belief that inflation will soon spring to life and a delayed response could hurt the economy.

But a vocal minority argue the Fed should hold off, allowing the economy to continue growing until inflation returns.

"The slight firming in prices, combined with the improved economic momentum, is enough for the Fed to increase its policy rate in December," Levy said. "The path of Fed policy beyond that is in question due to a variety of factors."