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Gasoline buoys U.S. consumer prices, underlying inflation tame

From Reuters - October 13, 2017

WASHINGTON (Reuters) - U.S. consumer prices recorded their biggest increase in eight months in September as gasoline prices soared in the wake of hurricane-related production disruptions at oil refineries in the Gulf Coast area, but underlying inflation remained muted.

The mixed report from the Labor Department on Friday comes as Federal Reserve officials have been engaged in a vigorous debate on the inflation path and suggests a December interest rate increase is not a done deal.

As a result, the dollar fell against a basket of currencies, while prices for U.S Treasuries rose. Stocks on Wall Street rose to record highs. Policymakers could, however, find solace from another report indicating that the economy was swiftly recovering from the damage inflicted by Hurricanes Harvey and Irma, with a strong rebound in retail sales last month.

The firmness in retail sales should override the enduring mystery of low inflation to spur a December Fed rate hike, said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

The Labor Department said its Consumer Price Index increased 0.5 percent last month after advancing 0.4 percent in August. Septembers rise was the biggest since January and pushed up the year-on-year gain in the CPI to 2.2 percent from 1.9 percent in August. The increase in the CPI was broadly in line with economists expectations.

Gasoline prices surged 13.1 percent last month, accounting for 75 percent of the rise in the CPI. The increase in gasoline prices was the largest since June 2009 and followed a 6.3 percent advance in August.

The Labor Department said Harvey was reported to have impacted refinery capacity in the Gulf Coast and was likely a factor in last months increase in gasoline prices.

Outside gasoline, price pressures were benign. Excluding the volatile food and energy components, consumer prices gained 0.1 percent in September as the increase in rental accommodation slowed and the cost of new motor vehicles and medical care declined.

The so-called core CPI rose 0.2 percent in August. In the 12 months through September, the core CPI increased 1.7 percent. The year-on-year core CPI has now increased by the same margin for five consecutive months.

INTENSE INFLATION DEBATE

The Fed tracks the personal consumption expenditures (PCE) price index excluding food and energy. The core PCE has consistently undershot the U.S. central banks 2 percent target for more than five years. Fed Chair Janet Yellen has said that temporary factors such as one-off price cuts by wireless telephone companies are holding back inflation.

Minutes of the Feds Sept. 19-20 meeting published on Wednesday showed many participants expressed concern that

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