CPI report shows headline inflation for September was hotter than forecast on rising shelter costs 

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The numbers: U.S. consumer prices climbed 0.4% in September, the Labor Department said Thursday. While the pace is softer than the 0.6% gain in the prior month, it was hotter than forecast.

Economists polled by The Wall Street Journal had estimated a 0.3% advance in September.

The rate of inflation in the 12 months ended in September remained steady at 3.7% rate from August. Economists were expecting a 3.6% increase.

The closely-watched “core” measure of inflation that omits volatile food and energy rose 0.3 in September for the second straight month. That was in line with forecasts.

The 12-month core decelerated to 4.1% from 4.3%. That matched expectations.

Key details: Shelter costs rose 0.6% in September and were the largest contributor to the increase in consumer prices, accounting for over half the increase, the department said.

The cost of gasoline, which rose 3%, was another major contributor.

The energy index rose 1.5% over the month. The food index rose 0.2% for the third straight month.

The core was boosted by rent, motor vehicles and recreation. The index for lodging away from home jumped 3.7%.

The index for used cars decreased over the month.  

Services less energy rose 0.6%.

Big picture: Inflation has come down sharply over the past year, but there is a sense that the last leg of the road back to the Fed’s 2% target may be harder.

Economists still think the Fed will be on hold at their meeting in early November.

What are they saying? “This CPI report will undoubtedly keep Fed officials on high inflation alert, but it won’t tilt the FOMC toward another fed funds rate hike at the upcoming meeting. Fed policymakers are now shifting their focus from “how high” to raise the policy rate to “how long” to maintain it at restrictive levels,” said Gregory Daco, chief economist at EY.

Market reaction: Stocks were lower in early trading on Thursday while the 10-year Treasury note yield rose to 4.62%.

See how much inflation has raised your cost of living, using MarketWatch’s guide

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