US consumer prices edge up; retail sales unexpectedly increase

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WASHINGTON (Nov 15): US consumer prices barely rose in October as the boost to gasoline prices from hurricane-related disruptions to Gulf Coast oil refineries was unwound, but rising rents and healthcare costs pointed to a gradual buildup of underlying inflation.

Low inflation is, however, helping to underpin consumer spending. Other data on Wednesday showed an unexpected increase in retail sales last month as heavy price discounting by automobile manufacturers lifted purchases of motor vehicles.

Rising retail sales and steadily firming underlying price pressures likely will keep the Federal Reserve on course to raise interest rates next month.

The Labor Department said its Consumer Price Index edged up 0.1% last month after jumping 0.5% in September. That lowered the year-on-year increase in the CPI to 2.0% from 2.2% in September. The increases were in line with economists' expectations.

Gasoline prices fell 2.4% after surging 13.1% in September, which was the largest gain since June 2009. September's jump in gasoline prices followed Hurricane Harvey, which struck Texas in late August and disrupted production at oil refineries in the Gulf Coast region.

Food prices were unchanged after nudging up 0.1% in September. Excluding the volatile food and energy components, consumer prices rose 0.2% in October amid a pickup in the cost of rental accommodation, healthcare costs, tobacco and a range of other goods and services.

The so-called core CPI gained 0.1% in September. October's increase lifted the year-on-year increase in the core CPI to 1.8%. The year-on-year core CPI had increased by 1.7% for five straight months.

The slight pickup in the monthly core CPI could offer some comfort to Fed officials amid concerns that stubbornly low inflation might reflect not only temporary factors but developments that could prove more persistent.

The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has consistently undershot the US central bank's 2% target for more than five years. The Fed has lifted borrowing costs twice this year and has projected three rate increases in 2018.

Prices of US Treasuries fell and the US dollar pared losses against a basket of currencies after the data. US stock index futures extended losses.

RENTS, HEALTHCARE COSTS RISE

Last month, owners' equivalent rent of primary residence climbed 0.3%, quickening after September's 0.2% increase. The cost of hospital services increased 0.5% and prices for doctor visits rose 0.2%. There were also increases in prices for wireless phone services, airline fares, education and motor vehicle insurance.

Prices for used cars and trucks rose 0.7%, ending nine straight months of declines. New motor vehicle prices, however, fell for a second consecutive month as manufacturers resorted to deep discounting to eliminate an inventory overhang.

In a separate report on Wednesday, the Commerce Department said retail sales increased 0.2% last month. Data for September was revised to show sales jumping 1.9%, which was the largest gain since March 2015, rather than the previously reported 1.6% advance.

Retail sales increased 4.6% on an annual basis.

Economists polled by Reuters had forecast that retail sales would be unchanged in October. The slowdown in retail sales last month from September's robust pace largely reflected an unwinding of the boost to building materials and gasoline prices after recent hurricanes.

Receipts at auto dealerships increased 0.7% after soaring 4.6% in September, supported by the deep price discounting by manufacturers. Sales at gardening and building material stores fell 1.2% last month after surging 3.0% in September.

Receipts at service stations decreased 1.2% in October. That followed a 6.4% gain in September. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3% last month after climbing 0.5% in September.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Last month's increase in core retail sales indicated a healthy pace of consumer spending at the start of the fourth quarter.

Consumer spending, which accounts for more than two-thirds of US economic activity, increased at a 2.4% annualized rate in the third quarter.