CPI Rises 0.4%, Higher Than Expected

A surge in gasoline prices helped raise the consumer price index 0.4% last month, and the total CPI for the July-September period indicated that the annual Social Security cost-of-living increase will be 2.6%, the Labor Department reported Friday.

The year-over-year 2.6% increase in the CPI for the July-September period is used to set the adjustments that will take effect at the beginning of next year for 45 million Social Security beneficiaries, as well as those who receive Supplemental Security Income payments and most federal civilian and military retirees.

The cost-of-living adjustment, or COLA, will be smaller than this year’s 3.5% increase, which was the highest in years because of a sharp rise in prices caused by soaring energy prices in 2000. Otherwise, it would be the largest since 1997, when it was 2.9%.

The CPI--the broadest available gauge of national inflation--rose at a stronger-than-expected 0.4% in September after a gain of 0.1% in August. It was the largest monthly rise in consumer prices since a matching 0.4% gain in May and exceeded Wall Street economists’ forecasts for a 0.3% advance.

But the core rate of inflation, which excludes food and energy, rose a more modest 0.2%, the same as in July and August.

The 2.6% COLA increase will mean an additional $22 a month for the average retiree.

A separate report from the Commerce Department on Friday showed the U.S. trade gap narrowed in August, which analysts took as a positive sign for third-quarter gross domestic product. The GDP report is due out at the end of the month.

Gasoline prices, which had shot up in advance of the Labor Day weekend at the start of the month--one of the year’s busiest driving periods--were up 8.6% in September. It was the sharpest rise in gas prices in more than a year, but prices at the pump have dropped significantly since the Sept. 11 terrorist attacks.

Food prices, meanwhile, rose by 0.2%, airline fares fell by 0.7%, and new-car prices were flat in September.

Overall, the monthly consumer prices report implied only modest inflation, leaving room for the Federal Reserve to keep trimming interest rates to try to give the economy a lift after the shock of the attacks on symbols of America’s financial and military might.

The Fed is widely expected to reduce borrowing costs further to help an economy many analysts fear tipped into recession in the wake of the attacks. The trade numbers, however, had at least one analyst hopeful that third-quarter GDP may avoid a contraction.

World oil prices touched two-year lows Thursday, but nudged higher Friday. Weakening global economic activity means less demand for oil, though prices are likely to remain somewhat volatile because of the potential for supply disruptions stemming from the U.S. bombing in Afghanistan.

The August trade gap was the smallest since January 2000 when it stood at $26.36 billion and was narrower than most analysts had expected.

It decreased $2.05 billion from the revised figure of $29.17billion for July, as imports fell for the fifth straight month.