The Economy

Gas Prices Drive 0.5% CPI Gain in September

The recent mini-surge in consumer prices may ease as oil refineries resume normal service after the disruptions of Hurricane Harvey.
Matthew HellerOctober 16, 2017

U.S. consumer prices continued a mini-surge in September as gas prices soared due to hurricane-related supply disruption but the Federal Reserve’s preferred inflation measure remained weak.

The Labor Department reported that the consumer price index, or cost of living, increased 0.5% last month, the biggest gain since January. The year-on-year increase in the CPI rose to 2.2% from 1.9% in August.

Economists polled by Reuters had forecast the CPI rising 0.6% in September and 2.3% year-on-year.

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Gasoline prices surged 13.1 percent last month, accounting for 75% of the increase in the CPI, as Hurricane Harvey knocked Gulf Coast refineries off line and forced gas dealers to scramble for supplies. It was the largest increase since June 2009 and followed a 6.3% advance in August.

But as Reuters reports, “Away from gasoline, price pressures were benign.” Excluding the volatile food and energy components, consumer prices gained 0.1% in September — after a 0.2% gain in August —as the increase in rental accommodation slowed and the cost of new motor vehicles and the medical care index declined.

Year on year, core CPI has now increased by 1.7% for five consecutive months.

“The mini-surge in inflation since August mostly reflects higher energy prices, but they have already started to decline as refineries get back in business,” MarketWatch said. “Inflation is still quite mild, indeed surprisingly so.”

The Fed’s preferred inflation measure, the personal consumption expenditures price index, has consistently missed the central bank’s 2% inflation target since mid-2012. “The persistent modest readings in the core CPI are likely to worry Federal Reserve officials who have been engaged in a vigorous debate on the inflation path,” Reuters said.

But with a tight U.S. labor market and a strengthening global economy, the Fed still appears on course to raise interest rates again in December.

“This [consumer prices] report likely won’t change anyone’s mind about the inflation outlook a year from now, and it won’t stop the Fed hiking in December,” said Ian Shepherdson of Pantheon Economics.