Higher gas costs drove up U.S. consumer prices in September for the second straight month.
Outside energy, there was little sign of inflation. The Labor Department said Tuesday that the consumer price index rose a seasonally adjusted 0.6 per cent last month, matching the August increase.
In the past 12 months, prices have increased two per cent. That's in line with the Federal Reserve's inflation target.
Excluding volatile food and energy costs, prices rose just 0.1 per cent. In the past year, so-called core prices have increased two percent.
"Pump prices are fueling headline inflation, but underlying ... trends remain benign," Robert Kavcic, an economist at BMO Capital Markets, said in a note to clients. Modest inflation leaves consumers with more money to spend, which can boost growth.
Low inflation also allows the Federal Reserve to continue with its efforts to rekindle the economy. If the Fed were worried that prices are rising too fast, it might have to raise interest rates. Food prices rose only 0.1 per cent.
The cost of meat, chicken and eggs fell. Dairy prices rose. Gasoline prices rose sharply over the summer and into September, but have since come down.
Drought could affect food prices
Tuesday's report noted that gas prices rose a seasonally adjusted seven per cent in September, below August's nine per cent increase.
Paul Ashworth, an economist at Capital Economics, said that with gas prices leveling off, overall inflation should stabilize at around two per cent for the next several months and then decline.
The summer's drought in the Midwest could ultimately affect grocery prices. The drought caused spikes in the cost of corn, soybeans and other grains. Those grains are used in animal feed, which pushes up the price of chicken, beef and pork.
And corn is also used in most products found throughout the supermarket, from cereals to soft drinks to cosmetics.
Kavcic said that stiff competition among grocery stores will likely limit any future food price increases. The cost of rent, clothing and airline tickets rose last month, pushing up core prices. Those increases were partly offset by a 1.4 per cent drop in used car and truck prices, the steepest drop since February 2009.
New car prices and the cost of furniture also fell.
The economy remains the top issues for voters with just three weeks left before the U.S. election. It will be front and center tonight night when President Barack Obama and Republican challenger Mitt Romney meet at New York's Hofstra University for the second of three debates.
Confidence grows
A batch of recent data suggests consumers are gaining confidence in the economy. Consumer sentiment rose to a five-year high in October, according to a survey by the University of Michigan.
And Americans stepped up their spending at retail businesses in September for the second straight month, buying more cars and iPhones.
The job market is also looking a little better. The unemployment rate fell to 7.8 per cent last month, the first time the rate has been below eight per cent since January 2009.
And employers added an average of 146,000 jobs per month in the July-September quarter — double the average number created during the April-June quarter.
Still, job growth remains too weak to rapidly bring relief to the more than 12 million Americans who are unemployed.
Last month, the Federal Reserve said it would try to stimulate the economy with a pair of bold steps. It is purchasing mortgage bonds to try and lower long-term interest rates and make home-buying more affordable.
And it plans to keep short-term interest rates low even after the economy accelerates.
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