Gasoline weighs on U.S. consumer prices, but inflation set to rise
By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer prices recorded their biggest drop in eight months in September as the cost of gasoline fell, but a steady pick-up in the prices of other goods and services suggested inflation was poised to rise.
There was good news on the labor market, with other data on Thursday showing new applications for unemployment aid fell back to a 42-year low last week. The very low level of layoffs and gradually firming underlying inflation could keep the door open to an interest rate increase from the Federal Reserve this year.
"Today's reports strengthen our view that the U.S. economy remains on the right track and should help to bolster the Fed's confidence that it is getting ever closer to meeting both of its mandates. We expect the first rate hike in December," said Harm Bandholz, chief economist at UniCredit Research in New York.
The Labor Department said its Consumer Price Index fell 0.2 percent last month after slipping 0.1 percent in August. In the 12 months through September, the CPI was unchanged for the first time in four months. It rose 0.2 percent in August.
Stripping out food and energy costs, prices rose last month. The so-called core CPI gained 0.2 percent after ticking up 0.1 percent in August. In the 12 months through September, the core CPI increased 1.9 percent, the largest gain since July 2014, after advancing 1.8 percent in August.
The Fed tracks the personal consumption expenditures price index, excluding food and energy, which is lower than the core CPI. Low inflation, which has persistently run below the U.S. central bank's 2 percent target, is a major hurdle to an interest rate hike this year.
Stocks on Wall Street rose on the data, snapping a two-day losing streak. Prices for U.S. government debt fell, while the dollar rose against a basket of currencies.