U.S. consumer inflation tame, labor market still tightening

WASHINGTON - U.S. consumer prices were unchanged in September and underlying inflation retreated, supporting expectations the Federal Reserve will cut interest rates in October for the third time this year amid risks to the economy from trade tensions.

The longest economic expansion on record, now in its 11th year, is under threat from the 15-month-old U.S.-China trade war, slowing growth overseas and a likely disorderly exit from the European Union by Britain. The trade war has undermined business investment and helped to drive manufacturing into recession. Growth is also being restricted by the fading stimulus from last year’s $1.5 trillion tax cut package.

Excluding the volatile food and energy components, the CPI climbed 0.1% after gaining 0.3% for three straight months. The so-called core CPI was restrained by moderate gains in healthcare costs, as well as declines in apparel, new motor vehicles and communications prices. In the 12 months through September, the core CPI increased 2.4%, matching August’s rise.

The Fed cut rates by a quarter point last month after reducing borrowing costs in July for the first time since 2008. A further reduction is expected at the Oct. 29-30 meeting. Economists expect inflation will pick up and breach the Fed’s target in 2020 following the recent broadening of U.S. tariffs on Chinese goods to include a range of consumer goods. A tightening labor market is also expected to support inflation.

Core is 2.4% two months in a row.

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