United States Inflation

United States

Core inflation drops to lowest level on record

Consumer prices in the United States rose for a fourth consecutive month in October, adding a seasonally adjusted 0.2% over the previous month. The price rise followed on a 0.1% increase registered in September and surprised the market on the downside, as analysts had expected prices adding 0.4%. As a result of the monthly price rise, annual headline inflation inched up to 1.2% (September: 1.1%). The monthly price rise reflected higher gasoline prices, which surged 4.6% over the previous month, thus driving energy prices up 2.6% in October. In contrast, prices for food added a moderate 0.1% over the preceding month. The core inflation index, which does not include prices for food and energy, was unaffected by these price pressures and recorded the third consecutive month-on-month flat reading in October. As a result, annual core inflation inched down from 0.8% in September to 0.6%, which marks the lowest core inflation rate since the inception of the core inflation index in 1957. The development of core inflation, which is among the most closely watched indicators by monetary policy makers, bolsters the case for the aggressive easing that culminated in the announcement of the QE2 programme in October. The Fed anticipates PCE inflation (based on the price index for personal consumption expenditures) to average between 1.0% and 1.1% this year, and to rise to between 1.1% and 1.6% in 2011. Consensus Forecast participants see inflation averaging 1.6% this year, which is unchanged from last month's forecast. For 2011, the panel anticipates average inflation inching down to 1.4%, which is down 0.1 percentage points over last month's estimate.

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