U.S. Inflation Gauge Increases at Slowest Pace in Four Months

(Bloomberg) -- A key measure of U.S. consumer prices rose in September at the slowest pace in four months, signaling little threat of accelerating inflation as the economy recovers.

The consumer price index rose 0.2% from the prior month after a 0.4% gain in August. Compared with a year earlier, the gauge increased 1.4%, after August’s 1.3% rise.

The core CPI, which excludes volatile food and fuel costs and is viewed by Federal Reserve policy makers as a more reliable gauge of price trends, also increased 0.2% from the prior month and climbed 1.7% from a year ago, Labor Department figures showed Tuesday. The key inflation figures on a monthly and annual basis matched the median forecasts in a Bloomberg survey of economists.

The moderation in consumer inflation occurred despite another hefty increase in used-motor vehicle prices and reflects subdued demand in some parts of the economy as the coronavirus continues to disrupt business and millions of Americans remain unemployed. Even so, the rebound in spending from the depths of the pandemic-induced slowdown has allowed for a gradual increase in prices.

“Although inflation did not brake heavily during this unique period, price increases started to ease six months in,” Jennifer Lee, senior economist at BMO Capital Markets, said in a note. “Supply issues and higher input costs have added to pricing pressures, but elevated unemployment will hold back more significant gains.”

The S&P 500 declined in early trade and as earnings season kicked off. The dollar rose and the yield on the 10-year Treasury note fell.

Fed policy makers are determined to push inflation higher, and have signaled they expect to hold interest rates near zero at least through 2023 to help achieve that goal. The U.S. central bank targets 2% inflation, measured by the Commerce Department’s personal consumption expenditures price index. That gauge has been almost continually below that goal since 2012, with PCE running a little bit weaker than CPI on average during that time.

Fed Chair Jerome Powell said in late August that the central bank will now aim to achieve 2% inflation on average over time and will tolerate periods when price pressures moderately overshoot that level. That means it will be slower to raise rates in response to declining unemployment than in the past.

The New York Fed’s September survey of consumer expectations released Tuesday showed few signs of accelerating price pressures over the medium term. The median inflation expectation over the next three years eased to 2.7%, down from 3% in the August survey.

The CPI report showed used-vehicle prices jumped by 6.7% from a month earlier, the most in data back to 1969. Demand for used cars and trucks has been rising since the coronavirus pandemic temporarily shuttered auto plants, constricting supplies of new vehicles. Even after the plants reopened, consumers have been searching for alternatives to public transportation and ride-sharing services, contributing to the increase in prices.

At the same time, inflation was restrained by a modest gain in shelter costs, which rose 0.1% for a second month. Compared with September 2019, shelter costs were up 2%, the smallest annual gain since February 2012.

Apparel prices, the cost of motor vehicle insurance and airfares declined from a month earlier. The decrease in airfares reflects a travel industry devastated by the health crisis.

Grocery-store prices declined 0.4% in September, while food away from home increased by the most since July 2008. Cheaper grocery-store items are a welcome relief for Americans who months ago saw larger supermarket receipts as the population hunkered down and stocked up.

©2020 Bloomberg L.P.