Consumer prices rise moderately but inflation tame

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By Associated Press

WASHINGTON (AP) — Consumer prices rose moderately in October but there was little sign of inflation as the cost of autos, clothing and hotels fell.

The Labor Department said Wednesday the Consumer Price Index rose by 0.2 percent last month, an increase from September's 0.1 percent rise. Wall Street analysts had expected a slightly larger increase. It was the fourth straight rise.

Gasoline prices accounted for most of the increase, rising by 4.6 percent in October, the biggest gain since July.

Excluding the volatile food and energy categories, the core consumer index was unchanged for the third straight month. In the past year, the core index has risen by only 0.6 percent, the smallest increase since the index began in 1957. That's down from September's 0.8 percent annual increase.

The weak economy is keeping a lid on prices. Consumers, facing high unemployment and slow wage growth, are restraining their spending. Retailers and other companies don't want to risk losing frugal shoppers by raising prices.

The weak reading in the core index is also a big reason the Federal Reserve decided earlier this month to launch a $600 billion program to buy Treasury bonds. That effort is intended to lower interest rates and spur more borrowing and spending, but it has come under extensive criticism. Many leading Republican economists said earlier this week that the Fed's actions risk triggering runaway inflation.

But the Fed would like to see prices rise more quickly than they currently are. When it announced the bond-buying program, the central bank said inflation is "somewhat low" compared to levels it considers consistent with price stability.

While flat prices may seem like a good thing for shoppers, the Fed wants to prevent deflation, a widespread and debilitating fall in prices and wages. Deflation also erodes the value of homes and other assets and makes it harder to pay off debts. The United States hasn't grappled with deflation since the Great Depression in the 1930s.

"For now, the data continue to show that price declines, not increases, is the concern of the day," Dan Greenhaus, chief economic strategist at Miller Tabak, said in a note to clients.

There are some signs that the core price index is stabilizing. The cost of housing, which makes up over 40 percent of the total index, rose by 0.1 percent last month. That's the first increase since July and only the second this year. Housing costs have fallen by 0.2 percent in the past year.

Last month's increase in housing costs was offset by lower prices for autos, clothing and recreation, which includes cable TV and other video services, toys and sports equipment.

Food prices rose slightly in October, the department said. The cost of fruits and vegetables and cereals and bakery products fell, while meat, dairy and egg prices increased.