WASHINGTON: A closely-watched US inflation measure retreated in October as a hurricane-related spike in energy prices subsided, according to new data published on Thursday (Nov 30).
The fresh sign of tepid inflation could weaken the case for the Federal Reserve to raise interest rates next month, as it is widely expected to do.
The central bank appears poised tighten monetary policy for the third time this year to remove stimulus from the economy in the belief that inflation will rise - eventually - even though there are few signs of upward pressure on prices.
But analysts pointed to upward revisions to figures for September, saying this could be a sign of a firming trend in inflation.
The Personal Consumption Expenditures price index, the Fed's preferred inflation statistic, rose a token 0.1 per cent, in line with expectations and slower than the 0.4 per cent gain in September.
Significantly, 12-month measure retreated by at tenth to 1.6 per cent, slipping further from the Fed's two per cent target. The measure is now down 0.6 percentage points since February.
And the core 12-month measure, which strips out volatile food and fuel prices, held steady at 1.4 per cent. This measure has not surpassed the two per cent level in more than five years.
In the data for last month, the energy index fell 1.1 per cent, partly offsetting September's 6.8 jump, fueled by the temporary shutdowns of oil production and refining in the southeast Texas energy hub in the wake of August's Hurricane Harvey.
Food prices were unchanged for the third month in a row.
Excluding food and fuel prices, the core index gained a stronger 0.2 per cent, the same as September, and also in line with analyst expectations.
The report follows Wednesday's release of a Fed survey showing businesses are seeing widespread, albeit modest, increases in prices and wage pressures that are beginning to mount as a result of labour shortages.
Mickey Levy of Berenberg Capital Markets said the 0.1 percentage point upward revisions to September's monthly and annual core PCE measures suggested inflation was strong enough to move the Fed to a rate hike.
"At 1.4 per cent, core PCE inflation remains below the Fed's two percent target but it is heading in that direction, increasing by an annualised 1.9 per cent over the last three months," he said in a client note.
"This progress is more than enough for the Fed to increase its policy rate at its December meeting."
The October PCE report also showed incomes rising faster than spending - with personal income up by US$65.1 billion, or 0.4 per cent compared to the prior month.
Personal expenditures rose 0.3 per cent, or US$34.4 billion, the biggest gain since February.
Kathleen Navin of IHS Markit said the result fell short of expectations and came with a downward revision of half a point to spending in September, pointing to lower GDP growth in the fourth quarter after the robust third quarter expansion of 3.3 per cent.
"The unexpected weakness in real consumer spending through October lowered our forecast of fourth quarter GDP growth two tenths to 2.3 per cent," she said in a client note.