Consumer prices jumped by the most in seven months in October, which together with abating fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term.
The report from the Labor Department on Wednesday showed broad price increases, with the cost of healthcare surging by the most in more than three years and recreation posting its biggest increase since early 1996.
The U.S. central bank last month cut rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Firming inflation comes on the heels of fairly upbeat data, including better-than-expected job growth in October and an acceleration in services sector activity.
There has also been a de-escalation of trade tensions between the United States and China. President Donald Trump on Tuesday said Washington was close to signing a “phase one” trade deal with Beijing, but provided no new details.
“Barring a sharp slowdown in economic activity, that supports the Fed’s stance of leaving interest rates on hold for an extended period,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York.
The consumer price index increased 0.4% last month as households paid more for energy products, healthcare, food and a range of other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September.
In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.
Economists polled by Reuters had forecast the CPI advancing 0.3% in October and gaining 1.7% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI rose 0.2% after edging up 0.1% in September. The so-called core CPI was lifted by the strong healthcare costs and increases in prices of used cars and trucks and recreation and rents.
In the 12 months through October, the core CPI increased 2.3% after rising 2.4% in September.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0% inflation target. The core PCE price index rose 1.7% on a year-on-year basis in September and has fallen short of its target this year.
The dollar rose against a basket of currencies on the data, while U.S. Treasury prices rose marginally. U.S. stock index futures extended losses.
October’s firmer monthly CPI reading and jump in healthcare costs suggest a pick-up in the core PCE price index last month. The core PCE price data will be published later this month.
In October, energy prices vaulted 2.7% after falling 1.4% in the prior month. Energy prices, which were also driven by more expensive electricity, accounted for more than half of the increase in the CPI last month.
Gasoline prices rebounded 3.7% after declining 2.4% in September. Food prices climbed 0.2%, rising for a second straight month. Food consumed at home gained 0.3%.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, climbed 0.2% in October after rising 0.3% in September. But other shelter categories softened last month. The cost of hotel and motel accommodation dropped 3.8%. As a result, the rent index edged up 0.1% last month, the smallest gain since April 2011.
Healthcare costs surged 1.0% last month, the most since August 2016, after climbing 0.2% in September. Healthcare costs were boosted by strong increases in the costs of hospital services and prescription medication.
Used motor vehicles and trucks prices increased 1.3% after decreasing 1.6% in September. The cost of recreation surged 0.7%, the largest increase since February 1996. Households also paid more for personal care products.
But they got some respite from apparel prices, which fell 1.8% after dropping 0.4% in the prior month. The government early this year introduced a new method and data to calculate the cost of apparel.
Prices for new motor vehicles declined for a fourth straight month. There were also decreases in the costs of household furnishings and airline fares.