U.S. Inflation Tamer Than Forecast Amid Mixed Consumer Demand

A measure of prices paid by U.S. consumers was unchanged in October, missing forecasts that called for a modest gain and indicating scant inflation as the pandemic drags on.

The reading on the consumer price index was the tamest in five months and followed a 0.2% advance in September, Labor Department data showed Thursday. Compared with a year earlier, the gauge rose 1.2%. The core index, which excludes volatile food and energy costs, was also unchanged from the prior month and up 1.6% from a year earlier.

The median estimate in a Bloomberg survey of economists called for a 0.1% monthly increase in CPI and a 0.2% gain in the core gauge. The report showed components were mixed as higher airfares and new-car prices helped offset declines in costs of gasoline, medical care, motor-vehicle insurance and clothing. Food inflation picked up by the most since June as grocery costs stabilized and consumers continued to dine out.

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The data signal inflation remains subdued as the pandemic continues to weigh on demand in some parts of the economy. While inflation stabilized as the U.S. economy picked up in the third quarter, risks of a broad acceleration are low given weakness in services activity.

“Core inflation seems unlikely to revive until the pandemic is over, at which point the wave of demand we’re expecting, as the reopened services sector meets the bulging bank accounts of households deprived of opportunities to spend, could easily lead to a rapid widening of margins,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Ltd., said in a note.

While gasoline and fuel oil costs declined in October from the prior month, overall energy prices rose 0.1% as a result of the biggest increase in electricity costs since May 2014. Medical care services prices fell 0.3%, the most since 1971.

Jobless Claims

A separate Labor Department report on Thursday showed applications for state unemployment benefits fell by the most in five weeks. Continuing claims also declined as Americans headed back to work and unemployed people rolled onto a federal program that offers additional weeks of benefits.

The S&P 500 index fell in early trading and Treasuries rose as mounting Covid-19 cases added to concern about tougher restrictions to contain the virus.

The pandemic has had a significant impact on a range of goods and services costs, including food prices and airfares. Inflation has been persistently running below the Federal Reserve’s 2% goal, measured by the Commerce Department’s personal consumption expenditures price index. The PCE price gauge tends to be a little bit weaker than CPI on average.

The Fed has signaled it plans to keep interest rates near zero through 2023, but there are few signs the policy will push inflation above their goal on a sustained basis. The latest survey of consumer expectations from the New York Fed showed inflation expectations over the next year and next three years both eased from the prior month.

Shelter costs, which account for about a third of the CPI, rose 0.1% for a third month. The index of lodging away from home decreased 3.2%. While new-car prices increased in October, used vehicles fell 0.1% after solid advances in each of the prior three months that had helped propel the overall CPI.

— With assistance by Chris Middleton, and Sophie Caronello

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