U.S. inflation slows in September, weekly jobless claims increase

By Jason Lange

WASHINGTON (Reuters) - U.S. consumer prices rose less than expected in September, held back by a slower increase in the cost of rent and falling energy prices, as underlying inflation pressures appeared to cool slightly.

The modest price increases come despite a U.S. labour market that looks robust by most measures. A separate report on Thursday showed an unexpected but moderate rise in the number of Americans filing for unemployment benefits last week.

With the readings only slightly below what analysts expected, the inflation report is not likely to impact expectations the Federal Reserve will raise interest rates at its December policy meeting.

"Overall, these data support our baseline view of a gradual pickup in inflationary pressures," Oxford Economics said in a note to clients.

The Consumer Price Index increased 0.1 percent last month after rising 0.2 percent in August, the Labour Department said. In the 12 months through September, the CPI increased 2.3 percent, slowing from August's 2.7 percent advance.

Excluding the volatile food and energy components, the CPI edged up 0.1 percent for the second straight month. The so-called core index had increased 0.2 percent in May, June and July.

In the 12 months through September, the core CPI increased 2.2 percent. Economists polled by Reuters had forecast both overall and core CPI climbing 0.2 percent in September.

U.S. Treasury yields extended their fall as the data added to the view that a sell-off in U.S. and global stocks may have partly paused expectations of a more aggressive pace of Fed rate hikes. The dollar <.DXY> weakened to a nearly two-week low against a basket of currencies.

TRUMP CRITICISM

The Fed tracks a different inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, for monetary policy. The core PCE price index rose 2.0 percent in the 12 months through August, holding at the Fed's 2 percent target for the fourth straight month.

The U.S. central bank has raised rates three times this year, and U.S. President Donald Trump on Thursday called the rate increases a "ridiculous" policy. It was the second consecutive day that Trump had criticized the Fed.

Last month, gasoline prices slipped 0.2 percent after surging 3.0 percent in August. Food prices were flat overall and prices for food consumed at home fell 0.1 percent.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.2 percent in September after rising 0.3 percent in August. Rental prices for primary residences rose 0.2 percent, down from a 0.4 percent increase in August.

Separately, the Labor Department said initial claims for state unemployment benefits increased 7,000 to a seasonally adjusted 214,000 for the week ended Oct. 6. While analysts had expected a slight decline, the reading still remained near a 49-year low.

The four-week moving average of initial claims, considered a better measure of labour market trends as it irons out week-to-week volatility, rose 2,500 to 209,500 last week.

The labor market is viewed as being near or at full employment, which many economists believe is helping U.S. wages grow a little more quickly and fuelling expectations of future rate increases.

(Reporting by Jason Lange; Editing by Paul Simao)