The Economy

Consumer Prices Post Biggest Gain in 2 Years

Fed Chair Janet Yellen says the firmer pace of inflation has "strengthened" the case for an interest rate hike next month.
Matthew HellerNovember 18, 2016
Consumer Prices Post Biggest Gain in 2 Years

Rising energy costs pushed consumer prices in October to the largest gain in two years but so-called core prices rose less than economists expected.

The Labor Department said consumer price index increased a seasonally adjusted 0.4% from September, the third straight monthly gain. Higher prices for gasoline, electrical utilities and shelter drove the gain, despite flat costs for medical services and food.

Energy prices in October rose 3.5%, with gasoline costs up 7%. Excluding the volatile food and energy categories, core CPI rose 0.1% from the month before, less than the 0.2% expected by economists.

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The October report “report provided further confirmation of strong energy base effects boosting headline CPI,” said Barclays economist Blerina Uruçi. “Although core inflation rose less than expected, we still believe that domestic price pressures remain strong.”

As The Wall Street Journal reports, “Inflation has been mostly subdued for the past several years, largely due to falling energy prices, an effect that is now fading.” Recent gains have lifted the CPI from “essentially flat a year ago to a rate of increase that is more consistent with a steadily growing economy,” it added.

Over the past year, consumer prices are up 1.6% — below the Federal Reserve’s 2 percent annual inflation target. But according to the Journal, “A firmer pace of inflation in recent months could offer support to officials advocating for a rate increase at their meeting next month.”

Fed Chair Janet Yellen cited stronger inflation readings in telling members of Congress on Thursday that the case for a rate increase had “strengthened.”

“As the labor market strengthens further and the transitory influences holding down inflation fade, I expect inflation to rise to 2%,” she said in written testimony.

Gas accounted for half of last month’s increase in non-core CPI. The energy index increased by 3.5% for the month, the highest increase since February 2013.

Shelter costs, which account for a third of the index, rose 0.4% last month, while food prices were flat for the fourth straight month.