Oct. 19, 2004
By Tim Ahmann
Yahoo News
Graphic: U.S. consumer prices rose an as-expected 0.2 percent last month, a government report showed on October 19, 2004, but a sharp jump in lodging costs helped push core inflation up at its fastest pace in five months. A separate report showed a more sluggish pace of groundbreaking for new homes in September than had been expected, but a bigger-than-anticipated gain in permits for future activity. (Reuters Graphic)
WASHINGTON (Reuters) - U.S. consumer prices rose an as-expected 0.2 percent last month, a government report showed on Tuesday, but a sharp jump in lodging costs helped push core inflation up at its fastest pace in five months.
A separate report showed a more sluggish pace of groundbreaking for new homes in September than had been expected, but a bigger-than-anticipated gain in permits for future activity.
A 0.4 percent drop in energy prices in September, the third straight monthly decline, helped temper the rise in the consumer price index, the most widely used gauge of U.S. inflation, the Labor Department said.
While food prices held steady, the core CPI, which strips out volatile food and energy costs, climbed 0.3 percent, the biggest gain since April.
Economists on Wall Street had expected both the overall index and the core measure to advance 0.2 percent.
Bond prices slipped and the dollar firmed against the euro on the view a faster underlying pace of inflation might convince the Federal Reserve to keep pushing short-term interest rates up.
Analysts said ahead of the report it would understate the inflation environment because it would not reflect a recent sharp rise in oil prices, an increase that has already been reflected in higher gasoline costs.
In September, gasoline prices rose a mild 0.1 percent, the report showed. Fuel oil costs shot up 2.1 percent, but natural gas prices slid 3.1 percent and electricity costs held steady.
U.S. light crude carved out a new high at $55.33 a barrel on Monday, but dropped below $53 a barrel on Tuesday.
The department said a 2.9 percent jump in the cost of lodging -- such as hotels and college dorms -- accounted for about three-quarters of the September acceleration in the core CPI, which had risen only 0.1 percent in each of the prior three months. Lodging costs had fallen 1.7 percent in August.
Despite the pickup, core prices have risen at only a 1.8 percent annual rate over the past three months, the slowest quarterly pace this year.
The department said the cost of housing rose 0.2 percent in September, the same as in August and July. In addition, apparel costs were unchanged after two monthly drops, while the price of medical care rose 0.3 percent after a 0.2 percent gain in August.
HOUSING BREATHER
In its report on housing starts, the Commerce Department said groundbreaking fell 6 percent last month to an annual rate of 1.898 million from an upwardly revised 2.020 million pace in August.
However, permits -- a sign of builder confidence -- rose 1.8 percent to a 2.005 million unit rate.
Analysts polled by Reuters were expecting a 1.950 million clip for starts and a 1.950 million pace for permits.
Single-family starts posted their biggest drop since February 2003, tumbling 8.2 percent, with activity off in all regions of the country.
Home building gained fresh strength in the summer on a decline in mortgage rates that were already not far above 40-year lows.
Interest rates on the popular 30-year fixed rate home loan eased to a national average of 5.74 percent last week after a government report showing a weak jobs market raised worries that economic growth is slowing.
OIL DAMPER
Worries over growth have arisen because of a big rise in oil prices since the start of the year.
Fed Chairman Alan Greenspan said on Friday the run-up in oil prices this year has had a "noticeable" impact on the U.S. economy, but suggested a 1970s-style combination of sluggish growth and skyrocketing inflation was unlikely.
Fed officials are widely expected to raise overnight borrowing costs a quarter-percentage point to 2 percent at their next policy meeting on Nov. 10, which would mark the fourth consecutive interest-rate rise since late June.
Many economists think the central bank will take a break from its rate-rise campaign at its subsequent meeting in mid-December to assess the impact oil is having on growth.
(Additional reporting by Mark Felsenthal)
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