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Consumer price index increases 0.2% in September

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CPI rises 2.4% year-on-year, smallest gain since 2021

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Core CPI gains 0.3%; up 3.3% year-on-year

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Weekly jobless claims jump 33,000 to 258,000

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Continuing claims increase 42,000 to 1.861 million

By Lucia Mutikani

WASHINGTON, Oct 10 (Reuters) - U.S. consumer prices rose

slightly more than expected in September amid higher food costs,

but the annual increase in inflation was the smallest in more

than 3-1/2 years, keeping the Federal Reserve on track to cut

interest rates again next month.

Other data from the Labor Department on Thursday showed

first-time applications for unemployment benefits surged last

week to the highest level in more than a year, boosted by

Hurricane Helene and a nearly four-week-old strike at Boeing ( BA )

, which has forced the U.S. planemaker to furlough workers

and impacted suppliers. The strike and hurricanes could distort

the labor market picture this month.

Despite the firmer-than-expected monthly inflation reading

last month, a sharp moderation in rent increases led economists

to expect a more muted rise in the main inflation measures

tracked by the U.S. central bank for its 2% target.

"The September CPI rose more than expected, but the details

do not suggest enough acceleration to sway the Fed from a 25

basis points rate cut next month," said Will Compernolle, macro

strategist at FHN Financial. "While there were some components

that showed concerning acceleration, the slowdown in shelter

inflation bodes well for future cool core services prices."

The consumer price index increased 0.2% last month after

gaining 0.2% in August, the Labor Department's Bureau of Labor

Statistics said. Food prices jumped 0.4% after rising 0.1% in

August. Grocery store food prices increased 0.4%, lifted by

higher costs for meat, poultry, fish and eggs. Fruits and

vegetable prices rebounded 0.9% after dropping 0.2% in August.

But consumers got some relief from gasoline prices, which

plunged 4.1%. Rents increased 0.3% after climbing 0.4% in the

prior month. In the 12 months through September, the CPI rose

2.4%. That was the smallest year-on-year increase since February

2021 and followed a 2.5% advance in August.

Economists polled by Reuters had forecast the CPI edging up

0.1% and rising 2.3% year-on-year. The annual increase in

inflation has slowed from a peak of 9.1% in June 2022.

Inflation is a major issue for voters in next month's

presidential election. Vice President Kamala Harris, the

Democratic Party's nominee, is locked in a tight race with the

Republican Party's candidate Donald Trump.

The Fed has mostly shifted focus to the labor market,

delivering an unusually large 50 basis points rate cut in

September. Minutes of that meeting published on Wednesday showed

a "substantial majority" of policymakers supported beginning an

era of easier monetary policy with an outsized cut, but there

appeared even broader agreement that the initial move would not

commit the Fed to any particular pace of rate reductions in the

future.

The first rate reduction since 2020 lowered the central

bank's policy rate to the 4.75%-5.00% range. The Fed hiked rates

by 525 basis points in 2022 and 2023.

U.S. stocks opened lower. The dollar was little changed

against a basket of currencies. U.S. Treasuries were mixed.

WEATHER DISTORTIONS

Financial markets saw a roughly 87% probability of a 25

basis points rate cut at the Fed's Nov. 6-7 policy meeting,

according to CME Group's FedWatch Tool. The odds of rates being

unchanged were at about 13%.

Investors abandoned hopes for another half-percentage point

rate reduction next month against the backdrop of continued

labor market resilience and solid consumer spending.

The economy added the most jobs in six months in September

and the unemployment rate fell to 4.1% from 4.2% in August.

There are also some pockets of stickiness, which are slowing

the pace of cooling in underlying inflation.

Excluding the volatile food and energy components, the CPI

increased 0.3% in September after rising 0.3% in August. The

so-called core inflation was driven by a rebound in the prices

of used cars and trucks. Healthcare costs rebounded 0.4%, pushed

up by a 0.9% surge in the cost of doctor services.

Motor vehicle insurance increased 1.2%, while apparel prices

advanced 1.1%. Airline fares cost 3.2% more. But owners'

equivalent rent, a measure of the amount homeowners would pay to

rent or earn from renting their property, gained 0.3% after

rising 0.5% in August.

In the 12 months through September, the core CPI advanced

3.3%. That followed a 3.2% gain in August.

In a separate report, the Labor Department said initial

claims for state unemployment benefits increased 33,000 to a

seasonally adjusted 258,000,for the week ended Oct. 5, the

highest level since early August 2023.

The increase was the largest since July 2021. Economists had

forecast 230,000 claims for the latest week.

Unadjusted claims soared 53,570 to 234,780 last week. They

were boosted by a 9,490 jump in claims in Michigan, which has a

heavy presence of Boeing ( BA ) suppliers.

Applications shot up 8,534 in North Carolina and rose 3,843

in Florida. Helene, which tore through Florida and devastated

large swathes of the U.S. Southeast in late September, is likely

to continue distorting claims data in the weeks ahead.

The labor market's short-term outlook is also likely to be

distorted by Hurricane Milton, which barreled through Florida on

Thursday, whipping up deadly tornadoes, destroying homes and

knocking out power. The roughly 33,000 machinists at Boeing ( BA )

who walked off the job last month could negatively impact

October's employment report.

Economists expect Fed officials will discount any sharp

decline in payrolls or rise in the unemployment rate in October.

The number of people receiving benefits after an initial

week of aid, a proxy for hiring, increased 42,000 to a

seasonally adjusted 1.861 million during the week ending Sept.

28, the claims report showed.

"Today's data shouldn't raise concerns as both data points

remain relatively low compared to history," said Eugenio Aleman,

chief economist at Raymond James. "In the wake of recent labor

strikes and natural disasters, we might see jobless claims

increase further over the next few weeks."