Consumer Prices Rise Moderately but Inflation Tame

By Beacon Staff

WASHINGTON – Consumer prices rose moderately in October but there was little sign of inflation as the cost of autos, clothing and hotels fell.

The Consumer Price Index rose 0.2 percent last month, the Labor Department said, mostly due to higher gas prices.

But excluding the volatile energy and food categories, the core index was unchanged for the third straight month. In the past year, core prices have risen by only 0.6 percent, the smallest annual rise since the index began in 1957.

The weak economy is keeping a lid on prices. Consumers, facing high unemployment and slow wage growth, are restraining their spending. Retailers and other companies don’t want to risk losing frugal shoppers by raising prices.

The report provides support for the Federal Reserve’s recent moves to boost the economy. The central bank said earlier this month that it would buy $600 billion in Treasury bonds in an effort to lower interest rates and spur more borrowing and spending.

That decision has come under extensive criticism. Many leading Republican economists said earlier this week that the Fed’s actions risk triggering runaway inflation.

But several economists said Wednesday’s report shows that concerns about inflation are misplaced.

“Fears about a potential outbreak of inflation from the Fed’s recent moves are massively overblown and are completely out of sync with the reality of extremely competitive markets for … products and services,” said Brian Bethune, an economist at IHS Global Insight.

The Fed would like to see prices rise more quickly than they currently are. When it announced the bond-buying program, the central bank said inflation is “somewhat low” compared to levels it considers consistent with price stability.

While flat prices may seem like a good thing for shoppers, the Fed wants to prevent deflation, a widespread and debilitating fall in prices and wages. Deflation also erodes the value of homes and other assets and makes it harder to pay off debts. The United States hasn’t grappled with deflation since the Great Depression in the 1930s.

“For now, the data continue to show that price declines, not increases, is the concern of the day,” Dan Greenhaus, chief economic strategist at Miller Tabak, said in a note to clients.

There are some signs that the core price index may stabilize. The cost of housing, which makes up over 40 percent of the total index, rose by 0.1 percent last month. That’s the first increase since July and only the second this year. Housing costs have fallen by 0.2 percent in the past year.

Last month’s increase in housing costs was offset by lower prices for autos, clothing and recreation, which includes cable TV and other video services, toys and sports equipment.

Food prices rose slightly in October, the department said. The cost of fruits and vegetables and cereals and bakery products fell, while meat, dairy and egg prices increased.

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