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US consumer prices, jobless claims increase

Market expectation of another interest rate cut next month rises to 90%

WASHINGTON – CONSUMER prices in the United States rose a brisk 0.3 per cent last month, driven by the sharpest rise in energy costs in five months, a government report showed yesterday.

Another report, meanwhile, showed that jobless claims were higher than anticipated.

The Consumer Price Index, the most broadly used gauge of inflation, rose at the same rate as in September, which was the steepest rise since a 0.7 per cent jump in May, according to the Labour Department report. But core prices, which strip out volatile energy and food costs, rose a more modest 0.2 per cent last month, also in line with expectations. Both the overall and core inflation readings were directly in line with expectations.

 

Wall Street shares opened lower yesterday, extending the previous day’s retreat. The Dow Jones Industrial Average fell 39.83 points, or 0.3 per cent, to 13,191.18 after half an hour of trading and the Nasdaq Composite Index dropped 5.09 points, or 0.19 per cent, to 2,639.23.

 US government bonds were steady, as the data was in line with forecasts and the US dollar showed little reaction.

‘It shows that there’s still growth – slow growth, but still growth – and as long as inflation stays within consensus, I think that it’s a net positive for the market,’ said Mr Marc Pado, a US market strategist at Cantor Fitzgerald in San Francisco.

At the same time, markets boosted chances that the Federal Reserve will cut rates at its meeting next month to 90 per cent, from 72 per cent late on Wednesday.

 Consumer prices were 3.5 per cent higher than a year ago, the biggest 12-month increase since August last year, when they rose 3.8 per cent, a Labour Department official said. Core prices were up 2.2 per cent on a year-on-year basis.

So far this year, prices have climbed by a seasonally adjusted annual rate of 3.6 per cent, driven by higher food and energy costs. That compares with a 2.5 per cent gain in all of last year.

 

Energy costs have surged at a 12.3 per cent annual rate this year, more than four times higher than the 2.9 per cent gain in all of last year.

 A separate Labour Department report showed new applications for US jobless aid rose more than expected to a seasonally adjusted 339,000 last week, and the more-reliable four-week moving average held steady at a six-month high.

Added to that weakening labour market picture was a report showing softening in the New York area manufacturing sector. A report from the New York Federal Reserve showed that manufacturing sector growth in New York state slowed this month, with new orders and inventory activity weakening and a big spike in material costs.

Source: REUTERS, AGENCE FRANCE-PRESSE (The Straits Times 16 Nov 07)

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