American inflation breaks 3 percent mark in October

A fresh sign of inflation is giving the Federal Reserve pause.

Consumer prices were up 5 percent in October from a year earlier, rising faster than the already-steep 4.7 percent increase expected in a Bloomberg survey of economists. The jump in overall inflation was concentrated in gasoline and clothes, pushing producer price gains to their highest in six years.

The figures suggest that inflation could be starting to accelerate even as President Donald Trump and the Fed claim progress in balancing the need for jobs and stable prices. The government also raised its third round of estimate for economic growth in the last few days, a signal that the 3 percent inflation target is within reach.

There’s “a core inflation story,” said David Chalupnik, head of equities at Nuveen Asset Management in Minneapolis. “The economic growth story seems solid and business investment is being better than expected. That could be driving the inflation story.”

While the data “are impressive,” as the outlook for interest rates on expectations of faster growth continues to “fade,” the report also highlighted potential trade issues, he said.

The Labor Department’s Producer Price Index, or PPI, measures wholesale prices on goods and services bought by producers. The government adjusted its October estimate down to show a 0.7 percent gain instead of a 2.3 percent increase. The PPI measures producer prices and is closely watched by economists because consumer prices are mainly determined by services.

There were a variety of price increases in October. Food prices fell 0.3 percent, after a 0.4 percent gain the prior month. Health-care costs rose 1.1 percent, from 1.0 percent. Labor costs were up 0.7 percent, compared with 0.5 percent the prior month.

Still, the overall increase in prices in October brought the 12-month increase for producer prices to 3.7 percent, the most since February 2012. That beat the 3.6 percent estimate in the Bloomberg survey of economists.

“The report shows more evidence of trade pressures easing as oil prices fall. We expect incoming data to show some similar moderation in producer prices in coming months,” Carl Riccadonna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, wrote in a note to clients. “Yet, we think the inflation pressure is holding steady or is starting to build back up.”

Energy producers such as Chevron Corp. and Exxon Mobil Corp. have been hit by weaker oil prices as sanctions on Iran are set to take effect.

Apparel costlier

On the other hand, the increase in prices was driven by the PPI for apparel, which gained 3.1 percent in October from a year earlier, against an expected gain of 1.5 percent. And prices paid for new vehicles rose 0.4 percent from a year earlier, down from 0.8 percent.

The consumer price index was estimated to have risen 0.2 percent in October from a month earlier, according to the median estimate in a Bloomberg survey. Gasoline prices were up 10.7 percent, the most since February, and food was up 0.2 percent, the most since July 2017.

The Fed’s preferred inflation gauge is tracking 2.1 percent, and non-food prices were up 1.9 percent. The government will publish updated inflation estimates on Friday in its advance estimate of third-quarter gross domestic product.

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