U.S. consumer prices rose more in September than a month earlier, reflecting higher costs for services such as hotel stays and medical care, a government report showed. The 0.2 percent increase in the consumer price index compares with a 0.1 percent rise in August, the Labor Department said in Washington. Prices were up 2.5 percent from September of last year compared with a 2.7 percent year-over-year rise in August. The core rate, which excludes food and energy, rose a larger-than-forecast 0.3 percent, the biggest rise since April, after rising 0.1 percent in the prior three months.
A 2.7 percent jump in the cost of hotel stays and other lodging away from home accounted for about three-fourths of the September increase in the core, Labor said. Federal Reserve Chairman Alan Greenspan said that while record crude oil prices are having a ``noticeable'' effect on the economy, they aren't high enough to spark inflation and slow growth like the U.S. experienced in prior energy shocks. ``Next month will be dominated by surging energy prices but the key point is that broad core inflation is very benign,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York. Housing construction fell 6 percent last month, the first decline in three months, led by the biggest decline in starts of single-family homes since early 2003, Commerce Department reported.
Forecast
Economists forecast a 0.2 percent in September consumer prices, according to the median of 70 forecasts in a Bloomberg News survey. The core index was also expected to increase 0.2 percent, according to the survey median. The Treasury's 4 1/4 percent note maturing in August 2014 fell 11/32, pushing up the yield 4 basis points to 4.09 percent, at 8:40 a.m. in New York. Excluding food and energy, the gauge was up 2 percent from September 2003 compared with 1.7 percent in August. So far this year, consumer prices are rising at a 3.5 percent annual rate, compared with a 2.6 percent increase at the same time a year ago. Core prices are rising at a 2.2 percent rate, compared with a 1.2 percent in the first nine months of 2003. The average weekly earnings of U.S. workers after adjusting for inflation were unchanged in September after rising 0.2 percent the month before, the department said.
Cost-of-Living Adjustment
Today's report will form the basis for the annual cost-of- living increase for Social Security benefits. The increase in based on the consumer price index for workers for urban wage earners and clerical workers for the quarter ending September versus a year earlier. A law enacted in 1973 provides for the automatic cost-of-living adjustments. The measure (CPI-W) increased 2.7 percent for the third quarter compared with the same three months last year. The previous increase was 2.1 percent. The Social Security Administration will make an official announcement. The increase will show up in Social Security payments for January. Energy prices, which account for about a 14th of the index, decreased 0.4 percent in September after a 0.3 percent decline the month before. They were up 6.7 percent from a year earlier. Gasoline prices rose 0.1 percent in September after a 1.4 percent fall.
Economic Growth
The increase in oil prices this year and weaker-than- expected hiring the past few months will restrain economic growth in the fourth quarter and into 2005, according to a Bloomberg survey of economists. The U.S. will grow at a 3.8 percent annual rate from October through December after expanding at an estimated 4 percent pace the previous three months, according to the median of 63 economists in a Bloomberg News monthly survey taken Oct. 1 to Oct. 11. ``Currently, the economy is not as strong as we would have thought it would be six or eight months ago. But it is still improving,'' said Fed Governor Mark Olson during a speech to community bankers yesterday. ``All of the recent information suggests the economy is still strong. The question we will face in each of the next meetings is does the economy continue to improve at a rate so that we can continue to remove the accommodation.''
Services
Prices for services, such as medical care, household operations and transportation, rose 0.3 percent after rising 0.1 percent. Services account for about 60 percent of the index, the government's broadest measure of inflation. The cost of medical care rose 0.3 percent in September. Compared with a year earlier, medical care was up 4.4 percent. Housing costs, which include some energy costs and account for one-third of the index, rose 0.2 percent for a third straight month. Prices for new automobiles fell 0.2 percent after falling 0.3 percent the month before. Clothing prices were unchanged. Automakers have been discounting cars and trucks to lure more buyers. Companies including General Motors Corp. boosted incentives last month to clear dealer lots of 2004 models. Average spending for incentives rose 12 percent to $4,523 in September from $4,041 in August, according to estimates from CNW Market Research, which tracks auto incentives. ``We had to increase our incentives a bit because our inventories were high,'' said John Devine, chief financial officer of General Motors, in an interview Oct. 14.
Education
The costs of education increased 0.6 percent for a second month. Food prices, which account for about a fifth of the index, were unchanged percent after rising 0.1 percent in August. Dairy and beef prices declined, while costs of fruits and vegetables increased. Airfares fell 1.6 percent after dropping 3.7 percent in August.
A government report Oct. 15 showed U.S. producer prices rose 0.1 percent in September, less than the average increase of the first six months this year and a sign manufacturers are having limited success in passing along higher costs for energy and other raw materials. The average crude oil contract on the New York Mercantile Exchange rose 2.4 percent in September to $45.99 a barrel from $44.88 in August. Crude oil prices reached a record $55.33 a barrel yesterday, and have risen about 65 percent this year.
Greenspan
While gasoline prices had fallen over the past few months, Greenspan said in the text of remarks to the National Italian American Foundation in Washington on Oct. 15 that he expects gas and heating oil prices will now ``mirror changes in costs of light crude oil.'' Increased competition and excess production capacity have made it difficult for companies in many industries to raise prices because they risk losing market share. Los Gatos, California-based Netflix Inc., the largest mail- order video-rental service, said last week it will cut its monthly subscription price and Amazon.com Inc. will offer a competing service. Rising energy prices have also emerged as an issue in this year's U.S. presidential election. Democratic candidate and Massachusetts Senator John Kerry spoke Oct. 11 about his energy plan, calling for incentives to develop alternative sources and criticizing President George W. Bush for high gas prices. Bush defended his energy proposals at a rally the same day in New Mexico, saying that ``at the heart of my plan is the understanding that in order to create jobs here, America must become less dependent on foreign sources of energy.'' ///www.bloomberg.com