U.S. consumer prices rose in September as rental costs surged, but a steady moderation in underlying inflation pressures supported financial market expectations that the Federal Reserve would not raise interest rates next month. The report from the Labor Department on Thursday showed the annual increase in consumer prices excluding the volatile food and energy components last month was the smallest in two years. With the labor market remaining tight, however, reaching the Fed's 2% inflation target could take some time, making it likely that the U.S. central bank could keep rates elevated for longer.
Higher U.S. Treasury yields and conflict in the Middle East are also seen discouraging the Fed from tightening monetary policy further. "The bigger picture is that the trend is still quite encouraging, but the fight continues," said Olu Sonola, head of U.S. regional economics at Fitch Ratings in New York. "They (Fed officials) may now want to extend the pause to December, given the recent increase in long-term rates." The consumer price index increased 0.4% last month. A 0.6% jump in the cost of shelter accounted for more than half of the rise in the CPI. There were increases in the costs of rent and hotel and motel accommodation.