Increase in consumer inflation above forecast

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US consumer inflation rose by a stronger-than-expected 0.6 per cent last month, boosted by steep rises in energy and food prices.

This took the annual rise in inflation to 3.2 per cent, having been below 3 per cent for the past three months. Energy prices shot 4.2 per cent higher in October, including an 8.6 per cent rise in gas prices. Food prices also climbed by 0.6 per cent, reflecting crop damage inflicted by four hurricanes in Florida in August and September.

The October figures suggest that increases in the cost of living have continued to outstrip pay rises for many Americans. But there were few signs of underlying inflationary pressure in the data.

The core inflation figure excluding volatile food and energy prices was up just 0.2 per cent, below September's 0.3 per cent rise. Economists were relieved yesterday that so far the climb in energy prices seems not to be spilling over into comparable rises in a broad range of consumer goods.

Many had been braced for a larger rise in core inflation after data earlier in the week revealed an unexpectedly large rise in prices paid to producers. Producer prices climbed by 1.7 in October the largest monthly rise since 1990. Even excluding food and energy, the producer price index climbed by 0.3 per cent.

Economists said Wednesday's consumer price figures were unlikely to alarm the Federal Reserve. “There is nothing here that is likely to cause the Fed to step up the pace of monetary tightening,” said David Sloane, an analyst at 4Cast, the economic consultancy. “Equally, there is no reason for them to stop tightening policy.”

The release coincided with figures showing a rebound in industrial production after the disruption caused by the hurricanes in previous months.

Industrial output rose by 0.7 per cent in October after a 0.1 per cent rise in September. Capacity utilisation seen by many economists as a useful gauge to unused potential in the economy rose by 0.4 percentage points to 77.7 per cent. This large jump still leaves utilisation lower than two months ago.

There was also good news for the US housing market on Wednesday, which continues to defy expectations of a slowdown. New residential construction rose by 6.4 per cent in October. Although the Federal Reserve has gradually raised interest rates since June, concerns about the durability of the economic expansion have helped keep bond yields and mortgage rates low.

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