U.S. consumer prices rebounded more than expected in October, and underlying inflation picked up, which coupled with reduced trade tensions and fears of a recession support the Federal Reserve signal of no further short-term interest rate cuts.
The Labor Department said on Wednesday the consumer price index rose 0.4% last month as households paid more for energy products, health care, food and a host of other goods. It was the biggest gain in the CPI since March and followed an unchanged reading in September.
In the 12 months through October, the CPI increased 1[ads1].8% after climbing 1.7% in September.
Economists polled by Reuters had predicted the CPI rose 0.3% in October, increasing by 1.7% year-on-year.
Excluding the volatile food and energy components, the CPI rose 0.2% after an increase of 0.1% in September. The so-called core CPI rose as health-care costs jumped most in more than three years. There were also increases in the prices of used cars and trucks and recreation and rent.
In the 12 months to October, core CPIs increased 2.3% after rising 2.4% in September.
The Fed tracks the main personal consumption expenditure (PCE) price index for its inflation target of 2.0%. The core PCE price index rose 1.7% year-on-year in September and has fallen below its target this year.
October's firmer monthly CPI reading and jumps in healthcare cost a pickup in the core PCE price index last month. The basic PCE pricing data will be published later this month.
Last month, the US central bank cut interest rates for the third time this year, signaling a break in the relief cycle that began in July when it reduced its borrowing costs for the first time since 2008.
Stable inflation comes at the high end of fairly positive data, including better growth than expected jobs in October and an acceleration in the activity sector's activity.
There has also been an escalation of US-China trade tensions. President Donald Trump said Tuesday that Washington was close to signing a "phase one" trade agreement with Beijing, but gave no new details.
While the 16-month US-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% last month. Energy prices accounted for more than half of the CPI increase last month.
Gasoline prices declined by 3.7% after falling 2.4% in September. Food prices rose 0.2% and rose for another month. Food consumed at home received 0.3%.
The owners' corresponding rent of a primary residence, which is what a homeowner would pay to rent or receive by renting a home, increased 0.2% in October after rising 0.3% in September. But other shelters were softened last month. The rent index rose 0.1%, the smallest gain since April 2011.
Health care costs rose 1.0% last month, most since August 2016, after climbing 0.2% in September. Clothing prices fell 1.8% after falling 0.4% last month.
Prices of used vehicles and trucks rose 1.3% after falling 1.6% in September.