Energy costs drive down price index
A big energy price drop pulled consumer prices down sharply in October while industrial output was weak, showing a cooling economy and easing worries about inflation.
A fall in energy prices helped drive the consumer price index down by a more-than-expected 0.5% in October, according to a Labor Department report Thursday. Stripping away volatile food and energy costs, so-called core prices were up only 0.1%.
Many analysts and investors, however, saw the recent inflation data as still too high to lead to interest rate cuts by the Federal Reserve in the near future.
The index “will be comforting for the Fed, but they’ll need more than one month’s data,” said Steven Wieting, senior economist at Citigroup in New York.
The government’s latest reading on prices was taken as good news by Chicago Federal Reserve Bank President Michael Moskow, who said inflation was moving in the right direction, but the evidence was limited.
“It’s one month, and I think it’s a bit premature for anyone to say that we have broken the back” of inflation, Moskow told reporters in Chicago.
Economists in a Reuters survey were expecting overall prices to fall 0.3% after a 0.5% decline in September. Core prices in the Labor Department report were expected to rise 0.2% after advancing by the same amount a month earlier.
Year-over-year, core consumer prices rose 2.7%, below economists’ median forecast for a rise of 2.9% and a deceleration from the 2.9% rise posted in the 12 months through September.
A separate Labor Department report showed little change in labor market conditions. The number of workers signing up for jobless benefits inched down to a seasonally adjusted 308,000 last week from 310,000 the previous week. The four-week average of these claims, which irons out weekly fluctuations, rose to 313,750 from 311,750.
On the industrial front, however, output at U.S. factories, mines and utilities rose a smaller-than-expected 0.2% in October, as production of motor vehicles dropped for the second month in a row.
Factory production fell 0.2% as output at motor vehicle plants sunk 3.9% last month and more than 10% from the same time a year earlier, according to Fed data. Analysts were expecting a 0.3% advance in overall industrial output after a 0.6% drop in September.
“There does seem to be some weakness, although a lot of it is related to autos; but even outside autos, manufacturing doesn’t look too strong,” said David Sloan, senior economist at 4Cast Ltd. in New York.
Another survey of manufacturing showed a rebound in activity in the mid-Atlantic region during November. According to the Philadelphia Federal Reserve Bank, business at factories in that region rebounded in November after contracting for the last two months, in line with Wall Street expectations.
In October, energy prices were down 7%. For the year to date they were down a seasonally adjusted annual rate of 1.5% after surging 17.1% last year.
Food and beverage prices were up 0.3% in October after gaining 0.4% in September. Prices for education and medical care continued to rise last month, while housing prices remained unchanged.
