U.S. inflation tame, but medical costs and rents pushing up

Tue Sep 17, 2013 12:59pm EDT
 
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By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices barely rose in August, but rising rents and medical care costs pointed to some stability in underlying inflation that could make the Federal Reserve more comfortable trimming its bond purchases.

The Labor Department report on Tuesday showed inflation largely under wraps, but some details suggested a down drift in prices earlier in the year had probably run its course.

"This should give policymakers greater confidence that the inflation soft patch in the first half was indeed transitory," said Joseph LaVorgna, chief economist at Deutsche Bank Securities in New York. "As a result, some fence-sitting participants may feel marginally more comfortable proceeding with a mini-taper of quantitative easing."

Fed officials were set to meet on Tuesday and Wednesday to deliberate on monetary policy. Most economists expect the U.S. central bank to announce a scaling back of the $85 billion in bonds it has been buying each month at the end of the meeting.

The Labor Department said its Consumer Price Index edged up 0.1 percent last month as the cost of energy fell and food prices remained muted. The CPI had risen 0.2 percent in July. In the 12 months through August, it increased at a slow 1.5 percent pace after advancing 2.0 percent in the 12 months through July.

Stripping out the volatile energy and food components, the so-called core CPI rose 0.1 percent after increasing by 0.2 percent in each of the past three months. Rents and medical care accounted for most of the increase in the core CPI.

The latest gain took the increase in the core index over the past 12 months to 1.8 percent, the largest rise since March. The core CPI had gained 1.7 percent in July.

Earlier in the year core inflation was moving lower, and reached levels that caused unease among some Fed officials. It touched a two-year low of 1.6 percent in June, but has been inching up for the last two months.   Continued...

 
Customers shop at a Walmart Supercenter in Rogers, Arkansas June 6, 2013. REUTERS/Rick Wilking