US inflation rate drops to zero in September but core inflation is nearly on target

 
Chris Papadopoullos
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Federal Reserve chair Janet Yellen has said interest rates can go up even if inflation is low (Source: Getty)

Annual inflation in the US dropped to zero per cent last month from 0.2 per cent in August, weighed down by cheap fuel, according to figures released today by the Bureau for Labor Statistics.

The consumer price index (CPI) – the basket of goods and services used to measure inflation – fell 0.2 per cent from August to September, its steepest decline in eight months. Compared with September last year it was unchanged, giving an inflation rate of zero per cent.

The energy index dropped 4.7 per cent on the month with the price measures for fuel oil, electricity, natural gas and gasoline all posting falls.

Food prices prices climbed 0.4 percent, their fastest monthly rise since May 2014.

A fall in global oil prices and a strong dollar have weighed on inflation over the last year, but the impact of cheap oil on the annual change in the CPI is expected to wear off toward the end of the year.

The US central bank, the Federal Reserve, targets inflation at two per cent, but the bank's chair Janet Yellen said at the end of last month that an interest rate hike was still on the table this year despite subdued price growth.

Steve Murphy, US economist at Capital Economist, said:

It is important to remember that the impact of the collapse in energy prices is only temporary and headline inflation will snap back by early next year, when the much bigger declines in energy prices at the end of 2014 drop out of the calculation.

Core inflation, which gives an indication of where inflation will go once temporary factors have worn off, climbed to 1.9 per cent from 1.8 per cent.

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