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U.S. Inflation Undershoots Fed's 2% Target for 42nd Straight Month -- Update
DOW JONES & COMPANY, INC. 10:44 AM ET 11/25/2015
A broad gauge of U.S. prices showed little sign of acceleration in October as inflation undershot the Federal Reserve's 2% annual goal for a 42nd consecutive month, though the central bank still appears on track to raise short- term interest rates next month.
The Commerce Department's personal consumption expenditures price index, which is the Fed's preferred way to measure inflation, rose a seasonally adjusted 0.1% in October from the prior month and increased 0.2% from a year earlier, steady from September's annual price growth.
Broad price gauges have plunged since mid-2014, largely due to a drop in oil prices. A strong dollar, which makes imports cheaper, also has weighed on inflation measures.
Excluding the often-volatile categories of food and energy, prices were roughly flat in October compared with the prior month, the Commerce Department said Wednesday. So-called core inflation, which can be a gauge of underlying price pressures, rose 1.3% in October from a year earlier, unchanged for 10 months.
"We expect core inflation to rebound quite strongly next year but, for now, the dollar's rise and structural weakness in medical care prices are generating a lot of disinflationary pressure," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients.
The Fed has signaled it may raise short-term interest rates, which it has kept pinned near zero since December 2008, at its Dec. 15-16 policy meeting. One precondition, the central bank said in its last statement, is that officials become "reasonably confident" that inflation will move back to 2% a year, a level the Fed considers consistent with its legal mandate to pursue stable prices.
Price growth has now undershot that target for 3 1/2 years. Some officials have cited still-low inflation as a reason for the Fed to hold off on raising rates. But other policy makers, including Chairwoman Janet Yellen, have argued that inflation is poised to rise as the economy improves, the labor market continues to tighten, and the temporary effects of falling oil prices and a rising dollar fade.
"We're not that far from the 2% target--when the price of oil stops falling, and when the dollar stops appreciating," Fed Vice Chairman Stanley Fischer said in early November.
Another broad measure of U.S. prices, the Labor Department's consumer-price index, has seen core inflation drift a bit higher in recent months. The CPI rose 0.2% in October from a year earlier, and prices excluding food and energy jumped 1.9% on the year.
The CPI gives more weight to shelter prices, which have been rising strongly, than does the PCE index.
"Core PCE inflation continues to be weak relative to the core CPI; it has essentially been stable this year, in contrast to the modest pick-up in the core CPI," High Frequency Economics chief U.S. economist Jim O'Sullivan said in a note to clients. "Of course, even a flat trend now suggests some acceleration later as pass-through from falling oil prices and the rising dollar eventually fade, especially if slack keeps shrinking and labor costs pick up."
Federal Reserve Bank of San Francisco President John Williams, a closely watched policy maker, said last weekend that "the inflation data have been consistent with inflation, core measures of inflation having stabilized and maybe even starting to firm up some."
Most private economic forecasters surveyed by the Journal expect the Fed will begin to raise rates in December. Financial markets concur; fed-funds futures on Wednesday morning suggested a roughly 78% probability of a rate increase next month, CME Group said.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com
(END) Dow Jones Newswires
11-25-151044ET
Copyright (c) 2015 Dow Jones & Company, Inc.
U.S. Inflation Undershoots Fed's 2% Target for 42nd Straight Month -- Update
DOW JONES & COMPANY, INC. 10:44 AM ET 11/25/2015
A broad gauge of U.S. prices showed little sign of acceleration in October as inflation undershot the Federal Reserve's 2% annual goal for a 42nd consecutive month, though the central bank still appears on track to raise short- term interest rates next month.
The Commerce Department's personal consumption expenditures price index, which is the Fed's preferred way to measure inflation, rose a seasonally adjusted 0.1% in October from the prior month and increased 0.2% from a year earlier, steady from September's annual price growth.
Broad price gauges have plunged since mid-2014, largely due to a drop in oil prices. A strong dollar, which makes imports cheaper, also has weighed on inflation measures.
Excluding the often-volatile categories of food and energy, prices were roughly flat in October compared with the prior month, the Commerce Department said Wednesday. So-called core inflation, which can be a gauge of underlying price pressures, rose 1.3% in October from a year earlier, unchanged for 10 months.
"We expect core inflation to rebound quite strongly next year but, for now, the dollar's rise and structural weakness in medical care prices are generating a lot of disinflationary pressure," Paul Ashworth, chief U.S. economist at Capital Economics, said in a note to clients.
The Fed has signaled it may raise short-term interest rates, which it has kept pinned near zero since December 2008, at its Dec. 15-16 policy meeting. One precondition, the central bank said in its last statement, is that officials become "reasonably confident" that inflation will move back to 2% a year, a level the Fed considers consistent with its legal mandate to pursue stable prices.
Price growth has now undershot that target for 3 1/2 years. Some officials have cited still-low inflation as a reason for the Fed to hold off on raising rates. But other policy makers, including Chairwoman Janet Yellen, have argued that inflation is poised to rise as the economy improves, the labor market continues to tighten, and the temporary effects of falling oil prices and a rising dollar fade.
"We're not that far from the 2% target--when the price of oil stops falling, and when the dollar stops appreciating," Fed Vice Chairman Stanley Fischer said in early November.
Another broad measure of U.S. prices, the Labor Department's consumer-price index, has seen core inflation drift a bit higher in recent months. The CPI rose 0.2% in October from a year earlier, and prices excluding food and energy jumped 1.9% on the year.
The CPI gives more weight to shelter prices, which have been rising strongly, than does the PCE index.
"Core PCE inflation continues to be weak relative to the core CPI; it has essentially been stable this year, in contrast to the modest pick-up in the core CPI," High Frequency Economics chief U.S. economist Jim O'Sullivan said in a note to clients. "Of course, even a flat trend now suggests some acceleration later as pass-through from falling oil prices and the rising dollar eventually fade, especially if slack keeps shrinking and labor costs pick up."
Federal Reserve Bank of San Francisco President John Williams, a closely watched policy maker, said last weekend that "the inflation data have been consistent with inflation, core measures of inflation having stabilized and maybe even starting to firm up some."
Most private economic forecasters surveyed by the Journal expect the Fed will begin to raise rates in December. Financial markets concur; fed-funds futures on Wednesday morning suggested a roughly 78% probability of a rate increase next month, CME Group said.
Write to Ben Leubsdorf at ben.leubsdorf@wsj.com
(END) Dow Jones Newswires
11-25-151044ET
Copyright (c) 2015 Dow Jones & Company, Inc.
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