U.S. underlying inflation rising, economy firming broadly

Underlying inflation pressures rose in October, even as falling gasoline prices kept overall U.S. consumer prices in check, bolstering expectations of a mid-2015 interest rate hike from the Federal Reserve.

Other data on Thursday showed vigor in the economy, with home resales rising at their fastest pace in a year in October and factory activity in the mid-Atlantic region expanding in November to its highest level since December 1993.

The Labor Department said on Thursday its so-called core Consumer Price Index, which excludes food and energy, increased 0.2 percent, the largest increase in five months, after nudging up 0.1 percent in September.

In the 12 months through October, the core CPI rose 1.8 percent after rising 1.7 percent in September, which should ease fears about deflation.

However, falling gasoline prices, which offset rising rent, household furnishings, airline, recreation, new motor vehicles and medical costs, left the overall CPI unchanged last month after a 0.1 percent gain in September.

“One number does not change the monetary policy outlook, but the stability in core inflation may help to offset some of the Fed’s concerns about declining inflation expectations,” said Michael Feroli, an economist at JPMorgan in New York.

The Fed targets 2 percent inflation and it tracks an index that is running even lower than the CPI.

Minutes of the Fed’s Oct. 28-29 meeting published on Wednesday showed most policymakers expect inflation will edge lower in the near-term and subsequently move toward its target.

But there was a bit of concern over falling market-based inflation expectations, with some officials saying they should be monitored for signs of “a possible downward shift in longer-term inflation expectations.”

The U.S. central bank has kept its short-term interest rate near zero since December 2008. Most economists expect the first interest rate increase sometime in the mid-2015. (Reuters)