U.S. consumer prices rebounded more than expected in October and underlying inflation picked up, which together with abating trade tensions and fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term.
The Labor Department said on Wednesday its consumer price index increased 0.4% last month as households paid more for energy products, healthcare, food and a range of other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September.
In the 12 months through October, the CPI increased 1.8% after climbing 1.7% in September.
Economists polled by Reuters had forecast the CPI advancing 0.3% in October and gaining 1.7% on a year-on-year basis.
Excluding the volatile food and energy components, the CPI rose 0.2% after edging up 0.1% in September. The so-called core CPI rose as healthcare costs jumped by the most in more than three years. There were also increases in prices of used cars and trucks and recreation and rents.
In the 12 months through October, the core CPI increased 2.3% after rising 2.4% in September.
The Fed tracks the core personal consumption expenditures (PCE) price index for its 2.0% inflation target. The core PCE price index rose 1.7% on a year-on-year basis in September and has fallen short of its target this year.
October’s firmer monthly CPI reading and jump in healthcare costs suggest a pick-up in the core PCE price index last month. The core PCE price data will be published later this month.
The U.S. central bank last month cut interest rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008.
Stable inflation comes on the heels of fairly upbeat data, including better-than-expected job growth in October and an acceleration in services sector activity.
There has also been an de-escalation of trade tensions between the United States and China. President Donald Trump on Tuesday said Washington was close to signing a “phase one” trade deal with Beijing, but provided no new details.
While the 16-month U.S.-China trade war is weighing on the manufacturing industry, the household sector remains solid.
In October, energy prices jumped 2.7% after falling 1.4% in the prior month. Energy prices accounted for more than half of the increase in the CPI last month.
Gasoline prices rebounded 3.7% after declining 2.4% in September. Food prices rose 0.2%, rising for a second straight month. Food consumed at home gained 0.3%.
Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, increased 0.2% in October after rising 0.3% in September. But other shelter categories softened last month. The rent index rose 0.1%, the smallest gain since April 2011.
Healthcare costs surged 1.0% last month, the most since August 2016, after climbing 0.2% in September. Apparel prices fell 1.8% after dropping 0.4% in the prior month.
Used motor vehicles and trucks prices increased 1.3% after decreasing 1.6% in September.