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U.S. headline inflation accelerates in October on rise in energy prices

U.S. headline inflation accelerated strongly on the month in October. Sequentially, the consumer price inflation rose 0.4 percent, driven by a 2.7 percent sequential rise in energy prices. The stronger reading lifted the year-on-year pace to 1.8 percent, up from 1.7 percent in September. Meanwhile, core rate rose 0.2 percent, consistent with market expectations. On a year-on-year basis, core inflation decelerated slightly from September 2.3 percent.

Core goods prices dropped 0.1 percent for the second straight month. Big fall in prices for apparel and personal computers were the main drivers of the fall. In all, core goods prices rose 0.3 percent year-on-year after a period of stable deflation through much of 2013-2018. On the contrary, core services inflation accelerated slightly to 3 percent year-on-year.

Medical care prices rose 1 percent in October, their strongest rise in three years, on higher hospital services costs. The index for prescription drugs also rose 1.8 percent on the month, but rose just 1 percent year-on-year. Price indexes for recreation and used cars & trucks also had hefty rises after falls in September.

Shelter prices rose 0.1 percent in October, slightly cooler than in recent months. Prices were held back by a 3.8 percent fall in lodging away from home.

“This well-behaved pattern is expected to continue in the coming quarters. This will provide ample justification for the Fed to take a prolonged pause on interest rates, as it assesses the impact of this year's rate cuts on the economy, whether global demand is showing signs of improvement, and how China-U.S. trade relations unfold”, said TD Economics in a research report.

By Aditi Awati
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