Consumer prices rose 0.1 percent in September, the Bureau of Labor Statistics reported Wednesday, defying analysts’ expectations for no change and fears that the U.S. is headed toward disinflation.
The BLS’ Consumer Price Index showed that inflation held steady at 1.7 percent for the year ending in September, having fallen in the previous two months, with increases in food and shelter prices outweighing declines in energy prices.
Stripping out food and energy costs, inflation was also unchanged at 1.7 percent for the year. Economists look at this measure, known as core inflation, to remove some of the usual volatility from inflation numbers and gauge the underlying trend.
Both headline and core inflation peaked at above 2 percent in May before declining over the end of the summer.
Slowing CPI inflation would be a cause for concern for the Federal Reserve, which has set a 2 percent inflation target. Core inflation by the Fed’s preferred measure stood at just 1.5 percent in the latest reading.
With prices failing to steadily move toward the Fed’s goal as Chairwoman Janet Yellen and other officials wind down the central bank’s large-scale bond purchases and look to raise interest rates above zero next year, some investors have raised concerns about a longer-term trend toward disinflation.
But part of the drop in headline inflation has been driven by falling energy prices, which economists say is unrelated to broader cyclical economic pressures. The price of a barrel of oil has fallen by roughly a quarter since June.
“The headline numbers will, of course, be held down in coming months by lower gasoline prices, although lower gasoline prices will also help boost real growth,” wrote High Frequency Economics economist Jim O’Sullivan in a research note.
Deutsche Bank economist Joseph LaVorgna wrote that “we need to be mindful that gyrations in inflation are the norm not the exception. There are compelling reasons why core inflation should trend higher over time.”
“In the near term, headline CPI will continue to be dominated by energy prices. However, the trend in core CPI will be determined primarily by the trend in service prices rather than goods prices,” LaVorgna explained.
