US CPI falls to four-year low of one per cent in October

CPI in October increased just 1.0 per cent, compared to October 2012 - the smallest 12-month increase since October 2009. Analysts had expected a 1.1 per cent increase, following September's 1.2 per cent rise, which was the smallest gain since April. The drop, says Paul Ashworth of Capital Economics, is unlikely to impact the Fed's decision on when to begin tapering its monthly asset purchases. The data comes ahead of the Federal Open Market Committee minutes later today, which could provide hints about a December taper.

The decline was led by the 2.9 per cent drop in the gasoline index. Other energy indicies were mixed, with the electricity index rising but fuel oil and natural gas both falling. Ashworth says that the one-off fall in the level gasoline prices won't be given too much weight by the Fed.

Month-on-month, the index fell 0.1 per cent on a seasonally-adjusted basis, after expectations it would stay unchanged following September, when it nudged up 0.2 per cent.

Excluded food and energy, the index rose 0.1 per cent in October.

The price of medical care services fell by 0.1 per cent month-on-month. That could, suggests Ashworth, "be related to the introduction of Obamacare. But it follows some outsized gains in August and September, so it could also just reflect some mean reversal."

Government shutdown, said the Bureau of Labor Statistics, meant that October's survey was only about 75 per cent of its normal size. Ashworth adds that "prices were presumably only collected in the second half of the month rather than over the whole month." In terms of knowing whether this smaller sample biased the results, he comments: "We'll have to wait until November's results are released to know for sure."

Overall, says Ashworth, "headline CPI inflation remains muted and even core inflation is a little lower than the Fed would like, but there is nothing here to alter the Fed's view that inflation will gradually rebound towards the 2 per cent target."