US inflation up but home building increases

Inflation in the US has risen to an annual 3.9 per cent in September with little sign of slowing, data has shown, as energy and food prices jumped over the past month.

Consumer price inflation rose at 0.3 per cent, its lowest pace since June, but that masked a two per cent increase in energy prices and 0.4 per cent rise in the food index.

Separate data on new housing starts in the US showed a surprise 15 per cent increase in September compared with August, to 658,000, while multi-family housing starts jumped 50 per cent compared with August.

“It looks like inflation on the all items index will remain high for some months to come as price rises earlier in the supply process show few signs of easing,” said Benjamin Williamson, senior economist at the Centre for Economics and Business Research.

Stripping out food and energy showed weak underlying inflation, with an 0.1 per cent rise in the core rate, economists said. Core inflation remained static at two per cent for the year.

“After five straight gains of 0.2 per cent or more, the core number is something of a relief. All three of the components responsible for the surge in core inflation this year were better behaved in September, said Ian Shepherdson, chief US economist at High Frequency Economics.

“Rents remain a concern given the plunge in vacancies, and as they account for 40 per cent of the index, core inflation will likely keep rising, but less quickly than of late.”

Economists said the housing starts data showed improvement in the market, from a low base.

“The jump in multifamily starts may explain the improvement in homebuilder sentiment that was published yesterday. The National Association of Homebuilders sentiment index improved four points to 18, the largest monthly gain since April 2010,” said ING economist Rob Carnell.

“Are we looking at a trend break here? We doubt it. September building permits actually fell five per cent MoM. With intense competition from cheap distressed sales continuing in the foreseeable future, construction activity will remain weak. One erratic jump in September multifamily starts does not change that judgement.”