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.


LG Chem separates battery business as electric cars take off

Updated 18 September 2020

LG Chem separates battery business as electric cars take off

SEOUL: South Korea’s LG Chem, an electric car battery supplier for Tesla and GM, said that it plans to separate its battery business into a new company as the electric vehicle market takes off.

The move came after LG Chem swung to a profit in its car battery business in the latest quarter. It expects further profitability thanks to growing demand from European car makers and more sales of cylindrical batteries used in Tesla cars.

LG Chem, South Korea’s top petrochemicals maker, has long bet on car batteries as a new growth engine, but it has never made an annual profit in the business since it started making them about a decade ago.

But expectations are growing for its car battery business as automakers push for more electric vehicles, fueled by Tesla’s rise and tougher emissions regulations in Europe.

LG Chem said the timing was right to separate the business, which competes with China’s CATL and Japan’s Panasonic, as it has started to make “structural profits” in its car battery business.

LG Chem said the new business, to be launched in December, aims to achieve a revenue of 30 trillion won ($25.5 billion) or more in 2024, from an expected revenue of 13 trillion won this year.

The new wholly owned subsidiary, tentatively named “LG Energy Solutions,” will include LG Chem’s small batteries used in smartphones and laptops and its energy storage systems, as well as its car batteries. LG Chem shares slumped 5.4 percent.

“Many LG Chem investors will only indirectly hold the battery business, which will be separated into a unit,” Daeshin Securities analyst Han Sang-won said.

He also said that investors are also taking profits ahead of Tesla’s battery day, in which Tesla may unveil its advanced battery technologies.

LG Chem said it will consider a stock market listing of the battery unit, without elaborating further.

Making the unit an independent company would also help to attract investments to the business, which requires heavy capital expenditure to expand production capacity as orders pile up, LG Chem said.