U.S. Consumer Prices Rose 0.5% in September on Higher Gasoline Costs -- 2nd Update

Consumer prices jumped in September due to a hurricane-caused increase in gasoline prices, but underlying inflation appeared tame, potentially raising questions for Federal Reserve policy makers.

The consumer-price index, measuring what Americans pay for everything from groceries to theater tickets, advanced 0.5% in September from a month earlier, the Labor Department said Friday. It was the largest monthly gain since January.

The rise was largely due to the largest one-month increase in gasoline prices since 2009. Hurricane Harvey, which made landfall in late August, temporarily shut Texas refineries, and Hurricane Irma caused additional disruptions in Florida last month.

When excluding volatile food and energy costs, so-called core prices increased 0.1%. Prices excluding food and energy rose in August by the most in seven months, but gains returned to trend in September. From a year earlier, core prices rose 1.7%, maintaining the same annual rate since May.

Separately, household expectations about future inflation softened this month, according to the University of Michigan's consumer sentiment survey. In October, consumers said they expected 2.3% inflation over the next year, down from 2.7% in September. The expectation for inflation in five to 10 years was 2.4%, the lowest reading since May.

"Core prices coming in weaker than expected indicates the momentum we saw in August might not be maintained," said Sarah House, an economist with Wells Fargo Securities. "That leaves a lot of questions for the Fed."

Some Fed officials have been waiting for signs of rising inflation -- coupled with low unemployment and steady job growth -- before raising interest rates for a third time this year. At their September meeting, officials penciled in a rate increase later this year, but some policy makers have expressed concerns about persistently soft inflation.

The Fed targets a 2% annual inflation rate, as measured by the Commerce Department's personal-consumption expenditures price index. That inflation gauge has undershot the target for all but two months since early 2012.

Still Fed officials will have several more inflation reports to review before making a December decision.

"The Fed will look beyond the recent hurricane boost in headline prices, " economists from Berenberg Capital Markets wrote in a note to clients. "Price gains will continue to be only modest, but enough for the Fed to increase its policy rate at its December meeting." The firm expects the Fed will pause its increases after December if the inflation outlook remains uncertain.

Beyond the hurricanes, improved economic growth around the globe has been putting upward cost pressures on commodities, including oil and other goods. But that hasn't fully translated directly into higher U.S. consumer prices, in part because technology is allowing Americans to find lower-cost products and wage pressures remain largely in check.

Friday's report showed gasoline prices rose 13.1% last month. Food prices increased 0.1%. Shelter prices advanced 0.3% over the month. Prices for drugs, cars and clothing fell last month.

Meanwhile, Americans' inflation-adjusted incomes slipped for the second straight month, the Labor Department said in a separate report Friday. Average weekly earnings, adjusted for inflation, fell 0.1% in September from a month earlier.

Sarah Chaney contributed to this article.

Write to Eric Morath at eric.morath@wsj.com

(END) Dow Jones Newswires

October 13, 2017 12:44 ET (16:44 GMT)