US consumer prices rose an as-expected 0.2 per cent last month, a government report showed yesterday, but a sharp jump in lodging costs helped push core inflation up at its fastest pace in five months.
A separate report showed a more sluggish pace of groundbreaking for new homes in September than had been expected, but a bigger-than-anticipated gain in permits for future activity.
A 0.4 per cent drop in energy prices in September, the third straight monthly decline, helped temper the rise in the consumer price index, the most widely used gauge of US inflation, the Labour Department said.
While food prices held steady, the core CPI, which strips out volatile food and energy costs, climbed 0.3 per cent, the biggest gain since April.
Economists on Wall Street had expected both the overall index and the core measure to advance 0.2 per cent.
Bond prices slipped and the dollar firmed against the euro on the view a faster underlying pace of inflation might convince the Federal Reserve to keep pushing short-term interest rates up.
Analysts said ahead of the report it would understate the inflation environment because it would not reflect a recent sharp rise in oil prices, an increase that has already been reflected in higher gasoline costs.
In September, gasoline prices rose a mild 0.1 per cent, the report showed. Fuel oil costs shot up 2.1 per cent, but natural gas prices slid 3.1 per cent and electricity costs held steady.
US light crude carved out a new high at $55.33 a barrel on Monday, but dropped below $53 a barrel yesterday.
The department said a 2.9 per cent jump in the cost of lodging - such as hotels and college dorms - accounted for about three-quarters of the September acceleration in the core CPI, which had risen only 0.1 per cent in each of the prior three months. Lodging costs had fallen 1.7 per cent in August.
Despite the pick-up, core prices have risen at only a 1.8 per cent annual rate over the past three months, the slowest quarterly pace this year.
The department said the cost of housing rose 0.2 per cent in September, the same as in August and July. In addition, apparel costs were unchanged after two monthly drops, while the price of medical care rose 0.3 per cent after a 0.2 per cent gain in August.
In its report on housing starts, the Commerce Department said groundbreaking fell six per cent last month to an annual rate of 1.898 million from an upwardly revised 2.020 million pace in August.
Analysts polled by Reuters were expecting a 1.950 million clip for starts and a 1.950 million pace for permits.
Single-family starts posted their biggest drop since February 2003, tumbling 8.2 per cent, with activity off in all regions of the country.
Home building gained fresh strength in the summer on a decline in mortgage rates that were already not far above 40-year lows.
Interest rates on the popular 30-year fixed rate home loan eased to a national average of 5.74 per cent last week after a government report showing a weak jobs market raised worries that economic growth is slowing.
Worries over growth have arisen because of a big rise in oil prices since the start of the year.
Fed Chairman Alan Greenspan said the run-up in oil prices this year has had a "noticeable" impact on the US economy, but suggested a 1970s' style combination of sluggish growth and skyrocketing inflation was unlikely.
Fed officials are widely expected to raise borrowing costs a quarter-percentage point to two per cent at their next policy meeting on November 10, which would mark the fourth consecutive interest-rate rise since late June.
Many economists think the central bank will take a break from its rate-rise campaign at its subsequent meeting in mid-December to assess the impact oil is having on growth.