NEW YORK — Inflation jumped higher in the United States in September as the energy drag eased, RBC Economics reported.
The headline consumer price index inflation picked up to 1.5 percent year-over-year from 1.1 percent in August, matching market expectations. Core inflation edged down to 2.2 percent in September, with markets having looked for the rate to hold steady at 2.3 percent.
Headline inflation is now running at its fastest pace since October 2014, said Economist Josh Nye.
The jump higher in September was largely due to a 5.8 percent month-over-month increase in gasoline prices that contrasts starkly with the 7 percent drop seen in September 2015, he explained. That left the year-over-year decline in gasoline at a much more modest -6.5 percent compared with -18 percent in August.
With oil prices holding near $50 per barrel thus far in October, compared with $45 in September, the gasoline component is likely to increase again in the current month, he predicted
“Even if oil prices simply stabilize near current levels, base effects from earlier declines will continue to reverse the earlier drag from energy prices, which we expect will result in inflation picking up above 2 percent early next year,” said Nye.
Excluding food and energy, core prices rose a less-than-expected 0.1 percent in September following an abovetrend 0.3 percent increase in August. The more modest gain was despite a solid 0.4 percent increase in shelter prices.
Medical care services were unchanged after jumping 1 percent higher in August. Core commodity prices edged lower, led by a decline in apparel prices.
Core commodities have provided a fairly consistent (albeit modest) drag on overall inflation despite less downward pressure on import prices with U.S. dollar appreciation having stalled since earlier this year. Core inflation, on a year-over-year basis, edged down from the cycle-high recorded in August.
“Although the increase in core prices was slightly below consensus, today’s CPI report was broadly consistent with expectations for an increase in headline inflation and another above-2 percent core reading,” said Nye. “There is little to suggest a meaningful pickup in underlying price pressure, but inflation is moving toward the Fed’s objective, and should continue to do so, as the drag from energy prices, and to a lesser extent import prices, eases.
“Today’s report is unlikely, on its own, to tip the Fed’s consensus in favor of a rate hike after what was apparently a “close call” for some committee members in September in addition to the three who voted to raise rates,” he added. “However, if labor market data also maintains an improving trend toward the end of the year, markets will continue to price in decent odds of a December rate hike.”
SOURCE: RBC Economics press release