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.


RDIF chief praises Saudi reforms, says Bezos hacking story is ‘Fake News’

Updated 9 min 55 sec ago

RDIF chief praises Saudi reforms, says Bezos hacking story is ‘Fake News’

  • Kirill Dmitriev: Investors interested in business opportunities presented by tourism, improved position of women and youth demographic in Kingdom

DAVOS: One of Saudi Arabia’s biggest investment partners has reassured the global community about doing business in the Kingdom and ridiculed the Jeff Bezos accusations of phone hacking.
Speaking on the sidelines of the World Economic Forum (WEF) annual meeting in Davos, Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), told Arab News that stories about the apparent hacking of Amazon boss Jeff Bezos’ phone did “not look plausible at all.
“This has all the signs of being fake news put about by enemies of the Kingdom.”
Dmitriev, whose organization has channeled investment into Saudi Arabia and partnered with the Kingdom on billions of dollars-worth of joint ventures, said the people he had spoken to in Davos remained in favor of the opportunities presented by Riyadh’s Vision 2030 strategy.
“Lots of people here are positive about the changes going on in Saudi Arabia, both from the West and Asia. They are interested in the business opportunities presented by tourism, the improved position of women and the youth demographic. I’m surprised the Western press does not give the full picture about what is happening in Saudi Arabia,” he added.
While in Switzerland, the RDIF announced a deal to invest in an online tourism platform that would benefit from increased Russian tourism, especially by members of Russia’s big Muslim minority, as well as other potential visitors to Saudi Arabia.
The Bezos allegations, which have been dismissed by Saudi officials as “absolutely silly,” were a hot topic of conversation at the WEF meeting.
A Western executive at a leading Gulf energy company, who declined to be named, said: “Phone hacking and cyber-security is a growing problem in the business world and is not confined to any one country.
“You have to take it all with a pinch of salt. If you’re going to do business in Saudi Arabia you will look at all the pros and cons, and this (the Bezos allegation) is not likely to deter you.”