WASHINGTON: US consumer prices increased for a fourth straight month in September, with the cost of cars and trucks rising by the most since 1969, but inflation is slowing amid excess capacity in the economy as it gradually recovers from the Covid-19 recession.
Though the benign report from the Labour Department on Tuesday will have no direct impact on monetary policy, it should allow the Federal Reserve to keep interest rates near zero for a while and continue with massive cash infusions as it nurses the economy back to health.
The US central bank is now more concerned about the labour market and has embraced flexible average inflation targeting, which in theory could see policymakers tolerate price increases above its 2% target for a period of perhaps several years to offset years in which inflation was lodged below its goal.
The consumer price index rose 0.2% last month after gaining 0.4% in August. The CPI advanced 0.6% in both June and July after falling in the prior three months as business closures to slow the spread of the coronavirus weighed on demand.
A 6.7% jump in the prices of used cars and trucks again accounted for most of the increase in the CPI last month. That was the biggest gain since February 1969 and followed a 5.4% advance in August. The strong increases likely reflect a shortage of used motor vehicles amid an aversion to public transportation because of fears of contracting Covid-19.
New motor vehicle prices rose 0.3%. There were also increases in the costs of recreation. But prices for motor vehicle insurance, airline fares and apparel fell. In the 12 months through September, the CPI increased 1.4% after rising 1.3% in August. Last month's inflation readings were in line with economists' expectations.
Excluding the volatile food and energy components, the CPI climbed 0.2% after rising 0.4% in August. The so-called core CPI gained 1.7% year-on-year, matching August's increase.
The Fed's preferred inflation measure, the core personal consumption expenditures (PCE) price index rose 1.6% in the 12 months through August. September's core PCE price index data is scheduled to be released at the end of this month.
Inflation is likely to remain muted at least through 2021 amid signs the economy's recovery from the downturn, which started in February, is showing signs of fatigue without more money from the government. At least 25.5 million people are on unemployment benefits. The slack in the labour market has left workers with limited power to bargain for higher wages.
Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, ticked up 0.1% in September after a similar gain in August. That led to an annual gain of 2.5%, the smallest since February 2014.
Gasoline prices edged up 0.1% after rising 2.0% in August. But electricity prices shot up 0.9%, the largest increase since October 2018. Food prices were unchanged after nudging up 0.1% in August. The cost of food consumed at home fell 0.4%, declining for a third straight month. Prices for nonalcoholic beverages fell 0.8%, the most since December 2010.
Dairy products, meat and fruits and vegetables were also cheaper last month. The cost of recreation rose 0.2% last month. Apparel prices decreased 0.5% after rising for three consecutive months. The cost of motor vehicle insurance declined 3.5%. Airline fares dropped 2.0% after increasing in each of the last three months.
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