Driven by fuel, inflation up 0.5%

In this Tuesday, April 25, 2017, photo, a customer pumps gas at a Mobil station in Alameda, Calif. On Friday, Oct. 13, 2017, the Labor Department reports on U.S. consumer prices for September.
In this Tuesday, April 25, 2017, photo, a customer pumps gas at a Mobil station in Alameda, Calif. On Friday, Oct. 13, 2017, the Labor Department reports on U.S. consumer prices for September.

WASHINGTON -- U.S. consumer prices rose 0.5 percent in September, the largest increase in eight months. The result reflects another big jump in energy prices in the aftermath of Hurricane Harvey, which shut Gulf Coast refineries and caused gasoline prices to spike around the country.

The September increase in the closely watched consumer price index was the biggest one-month gain since a 0.6 percent rise in January, the Labor Department reported Friday.

Energy prices shot up 6.1 percent, led by a 13.1 percent surge in gasoline. Analysts believe the impact of the hurricane will be temporary.

Core inflation, which excludes volatile food and energy, rose 0.1 percent in September.

Over the past year, overall prices are up 2.2 percent, while core inflation has risen 1.7 percent.

The changes in inflation from the third quarter this year compared with the third quarter a year ago will result in a cost-of-living adjustment of 2 percent next year for more than 70 million recipients of Social Security and other government benefits. It is the biggest annual increase since a 3.6 percent rise in 2012.

So far this year, inflation by a measure preferred by the Federal Reserve has been falling further from the Fed's target of 2 percent annual price gains. In the latest month, the annual increase was just 1.4 percent.

The Fed has been perplexed by the slowdown in inflation this year, first believing it was caused by temporary factors. But now Fed Chairman Janet Yellen and other Fed officials have expressed concerns that something more fundamental may be at work.

The Fed has raised its benchmark lending rate twice this year. At its September meeting, it signaled that a third increase was still expected. Many analysts believe that the Fed will raise rates again in December. But some think that a rate increase will not occur unless inflation shows signs of moving higher, beyond storm-related factors.

"Prior to the data the thinking was the Fed would look through the hurricane impact and find some move in inflation," said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Ala. "Instead I think the September data will bring more doubt than confidence," especially for members wavering in their assessment of underlying inflation trends, he said.

Other indicators signal the steady economic expansion will continue. Separate reports on Friday showed U.S. consumer sentiment unexpectedly surged to a 13-year high in October and retail sales rose last month by the most in more than two years as Americans replaced storm-damaged cars and paid higher prices at the gasoline pump. Excluding autos and fuel, sales still increased at the second-fastest pace since January.

Consumers are "encouraged to see the organic improvement of an economy that appears to be finally hitting its stride," said Carl Riccadonna, chief U.S. economist for Bloomberg Intelligence. At the same time, Friday's inflation report showed a "troubling" decline in inflation expectations, which could also factor into the Fed's debate on raising interest rates, he said.

Fed Vice Chairman Stanley Fischer, who departs the central bank this month, said Friday on CNBC that given uncertainty over inflation, "we have to be more careful than full speed ahead" on tightening policy.

"Fed officials are struggling to make sense of the data," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note following the reports. "For now, most policy makers seem ready to hike rates again in December, based on the notion that above-trend growth and tight labor markets will eventually produce a pickup in rates."

Information for this article was contributed by Martin Crutsinger of The Associated Press and by Patricia Laya, Shobhana Chandra and Agnel Philip of Bloomberg News.

Business on 10/14/2017

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