Inflation unlikely to be a threat as economy emerges from recession

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Consumer prices rose at a slower pace last month, showing that inflation remained tightly under wraps as the economy took tentative steps toward a recovery.

The U.S. Consumer Price Index edged up 0.2 percent in September, half the 0.4 percent rise in August, the Labor Department reported yesterday. Gains in vehicle prices, airfares and medical costs were muted by continued declines in food and an unusual drop in rental rates.

The so-called core rate of inflation, which excludes volatile food and energy prices, also rose 0.2 percent in September. For the last 12 months, the CPI was down 1.3 percent.

Economist Robert Dye termed it a "Goldilocks" report, showing that inflation was neither too hot nor too cold and signaling that the Federal Reserve would continue to leave interest rates at record lows.

The CPI "is within the range most economists would call appropriate," said Mr. Dye, senior economist at PNC Financial Services Group in Pittsburgh. "I think this report will be within the Fed's acceptable range."

The Federal Reserve keeps a close watch on consumer prices, along with producer prices and other economic measures for signs that inflation is heating up.

"The Fed wants to keep inflation at a minimum while ensuring that the economy is fully functional," Mr. Dye said.

Acting too soon to quell inflation by raising interest rates risks pushing the fragile economy back into a tailspin.

Economists don't expect a Fed rate boost until the second half of next year. Mr. Dye said there was nothing in yesterday's CPI report to change that thinking.

The report showed energy prices rose 0.6 percent last month following a 4.6 percent spike in August. Higher gasoline, fuel oil and electricity prices more than offset a decline in natural gas. Vehicle prices also picked up, reflecting the expiration of the government's Cash for Clunkers rebate.

Rents fell for the first time in 17 years last month, hit by the double whammy of a weak economy and the draw of the first-time home buyers tax credit, which pulled people out of the rental market.

Mr. Dye said he expected inflation to remain subdued for some time, barring a major kink, such as a disruption in the oil supply.

The country continues to struggle with a jobless rate near 10 percent and a record level of idle capacity in the manufacturing sector, he noted.

"It's very difficult to put together an inflation scenario with that much slack in the economy," he said.

Reach Patricia Sabatini at or 412-263-3066.


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