Rising health care costs power US consumer inflation

A report from the Labor Department on Wednesday showed broad price increases, with the cost of health care surging by the most. (Reuters)
Updated 13 November 2019

Rising health care costs power US consumer inflation

WASHINGTON: US consumer prices jumped by the most in seven months in October, which together with abating fears of a recession, support the Federal Reserve’s signal for no further interest rate cuts in the near term.

The report from the Labor Department on Wednesday showed broad price increases, with the cost of health care surging by the most in more than three years and recreation posting its biggest increase since early 1996.

The US central bank last month cut rates for the third time this year and signaled a pause in the easing cycle that started in July when it reduced borrowing costs for the first time since 2008. Firming inflation comes on the heels of fairly upbeat data, including better-than-expected job growth in October and an acceleration in services sector activity.

There has also been a de-escalation of trade tensions between the US and China. President Donald Trump on Tuesday said Washington was close to signing a “phase one” trade deal with Beijing, but provided no new details.

“Barring a sharp slowdown in economic activity, that supports the Fed’s stance of leaving interest rates on hold for an extended period,” said Michael Pearce, a senior US economist at Capital Economics in New York.

The consumer price index (CPI) increased 0.4 percent last month as households paid more for energy products, healthcare, food and a range of other goods. That was the largest gain in the CPI since March and followed an unchanged reading in September.

HIGHLIGHTS

• Consumer price index (CPI) increases 0.4 percent in October.

• CPI advances 1.8 percent year-on-year.

• Core CPI rises 0.2 percent; up 2.3 percent year-on-year.

In the 12 months through October, the CPI increased 1.8 percent after climbing 1.7 percent in September.

Economists polled by Reuters had forecast the CPI advancing 0.3 percent in October and gaining 1.7 percent on a year-on-year basis.

Excluding the volatile food and energy components, the CPI rose 0.2 percent after edging up 0.1 percent in September. The so-called core CPI was lifted by the strong health care costs and increases in prices of used cars and trucks and recreation and rents.

In the 12 months through October, the core CPI increased 2.3 percent after rising 2.4 percent in September.

The Fed tracks the core personal consumption expenditures (PCE) price index for its 2 percent inflation target. The core PCE price index rose 1.7 percent on a year-on-year basis in September and has fallen short of its target this year.

The dollar rose against a basket of currencies on the data, while US Treasury prices rose marginally. US stock index futures extended losses. 

Gasoline prices rebound 

October’s firmer monthly CPI reading and jump in healthcare costs suggest a pick-up in the core PCE price index last month. The core PCE price data will be published later this month.

In October, energy prices vaulted 2.7 percent after falling 1.4 percent in the prior month. Energy prices, which were also driven by more expensive electricity, accounted for more than half of the increase in the CPI last month.

Gasoline prices rebounded 3.7 percent after declining 2.4 percent in September. Food prices climbed 0.2 percent, rising for a second straight month. Food consumed at home gained 0.3 percent.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, climbed 0.2 percent in October after rising 0.3 percent in September. But other shelter categories softened last month. The cost of hotel and motel accommodation dropped 3.8 percent. As a result, the rent index edged up 0.1 percent last month, the smallest gain since April 2011.

Health care costs surged 1 percent last month, the most since August 2016, after climbing 0.2 percent in September. Health care costs were boosted by strong increases in the costs of hospital services and prescription medication.

Used motor vehicles and trucks prices increased 1.3 percent after decreasing 1.6 percent in September. The cost of recreation surged 0.7 percent, the largest increase since February 1996. Households also paid more for personal care products.

But they got some respite from apparel prices, which fell 1.8 percent after dropping 0.4 percent in the prior month. The government early this year introduced a new method and data to calculate the cost of apparel.

Prices for new motor vehicles declined for a fourth straight month. There were also decreases in the costs of household furnishings and airline fares.


UK offers Huawei limited role in 5G networks

Updated 17 min 40 sec ago

UK offers Huawei limited role in 5G networks

  • Deal with ‘high-risk’ supplier sets up clash with US over security concerns

LONDON: Britain has decided to let Chinese tech giant Huawei have a limited role supplying new high-speed network equipment to wireless carriers, ignoring the US government’s warnings that it would sever intelligence sharing if the company was not banned.

Britain’s decision is the first by a major US ally in Europe, and follows intense lobbying from the Trump administration as the US vies with China for technological dominance.

It sets up a diplomatic clash with the Americans, who claim that British sovereignty is at risk because the company could give the Chinese government access to data, an allegation Huawei denies.

“We would never take decisions that threaten our national security or the security of our Five Eyes partners,” Foreign Secretary Dominic Raab said, referring to a security arrangement in which Britain, the US, Australia, Canada and New Zealand, share intelligence. “We know more about Huawei and the risks that it poses than any other country in the world.”

The decision was awkward for British Prime Minister Boris Johnson, who risks the fury of one of Britain’s closest allies at just the moment it needs the Trump’s administration to quickly strike a trade deal after Brexit. Britain officially leaves the EU at the end of the week, and US Secretary of State Mike Pompeo is due to pay a two-day visit to meet with Johnson and Raab to reaffirm the tran-Atlantic relationship.

A senior Trump administration official said the US is disappointed by the decision, adding that the US government would work with the UK on a “way forward” that leads to the exclusion of “untrusted vendor components” from 5G networks. The official was not authorized to comment on the sensitive diplomacy between longstanding allies and spoke on condition of anonymity.

In its decision, the British government said it was excluding “high-risk” companies from supplying the sensitive “core” parts of the new fifth-generation, or 5G, networks. The core is the brain that keeps track, among other things, of smartphones connecting to networks and helps manage data traffic.

But Britain will allow high-risk suppliers to provide up to 35 percent of a carrier’s less risky radio network, based on factors including the amount of data traffic and the number of base stations.

The announcement did not mention any companies by name but said “high-risk vendors are those who pose greater security and resilience risks to UK telecoms networks” — a clear reference to Huawei.

Huawei said it was reassured by the “evidence-based decision,” portraying it as a victory. Executives said 35 percent of a market would be a good result for most companies.

“We need to have strong competition to make sure the consumer can enjoy the best possible technologies,” Vice President Victor Zhang said on a conference call with reporters.

By giving Huawei limited access, Johnson’s government is attempting to thread a path between the US and China, analysts said.

“In truth the UK had little room to maneuver,” said Emily Taylor, CEO of Oxford Information Labs, a cyber intelligence company. The decision “seeks to carve an acceptable middle ground that will keep various contending forces happy,” she said, noting that British wireless carries have already been using Huawei gear for 15 years.

The 5G technology is expected to drive the next wave of innovation, transmitting massive amounts of data from more objects and locations. It would, for example, help make possible self-driving cars or remote surgery.

Huawei is the top global supplier of mobile networks, and it’s considered a cost-effective and high-quality alternative to its main rivals, Finland’s Nokia and Sweden’s Ericsson.

The US says that China’s communist leaders could, under a 2017 national intelligence law, compel Huawei to carry out cyberespionage. The US has threatened repeatedly to cut off intelligence sharing with allies that use Huawei.

“Here’s the sad truth: Our special relationship is less special now that the UK has embraced the surveillance state commies at Huawei,” said US Sen. Ben Sasse, a Republican on the Senate Select Committee on Intelligence. “During the Cold War, Margaret Thatcher never contracted with the KGB to save a few pennies.”

With 5G, US officials also worry that because the “core” will run extensively on software, it could be nearly impossible to spot an accidental vulnerability or a malicious “backdoor” among millions of lines of computer code. Huawei denies the allegations, saying there has never been any evidence it is responsible for a breach.

For Britain, the 5G infrastructure program is considered critical as it leaves the EU and aims to position its economy to benefit from technological innovation.

The government said Tuesday it is taking some steps that will allow it “to mitigate the potential risk posed by the supply chain and to combat the range of threats, whether cyber criminals, or state-sponsored attacks.” The plans include encouraging smaller suppliers such as South Korea’s Samsung and Japan’s NEC to enter the British market.

The government will draft legislation to make the security requirements mandatory. In the meantime, cybersecurity officials will advise wireless carriers, some of whom have already installed Huawei 5G-capable gear that exceeds the 35 percent cap, on how to comply.

Mobile phone companies said they were analyzing the decision. Vodafone, which uses Huawei for parts of its radio network but not in its core, said that using multiple suppliers “is the best way to safeguard the delivery of services to all mobile customers.”