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Wednesday, November 17, 1999 Published at 14:24 GMT


Business: The Economy

US inflation still subdued

Prices of clothing surged - but everything else stayed moderate

US inflation continued at a moderate pace in October.

Prices rose by only 0.2% in October, compared to the previous month. And the core rate, excluding more volatile food and energy prices, was also 0.2%.

That was lower than the increase of 0.4% in September, and better than the average of 0.3% for the year.

On a yearly basis, the core US consumer price index (CPI) rose 2.1%, while the overall index was up 2.6%

The figures matched the expectations of most economists, which reassured the financial markets.

"This is a market friendly CPI number. The Fed is not behind the curve. There is nothing in the report that reverses the (low inflation) trend," said Peter Kretzmer of Banc of America.

No more rate rises?

The modest pace of inflation suggests that there may not be any more interest rate increases by the US central bank, the Federal Reserve.

On Tuesday the Fed raised US interest rates by 0.25% to 5.5%, saying it was worried about the booming economy and the tight labour market.

But it also said that it was returning to a neutral bias, suggesting that it may not move again on interest rates for several months.

There are still fears that higher commodity prices will help push up inflation.

Oil prices have more than doubled since their low of $10 a barrel last year to nearly $25 a barrel now.

In October, however, neither fuel and energy prices showed big increases. Energy prices actually fell 0.1%, as the summer driving season ended, while food was up a modest 0.2%.

Clothing prices rose sharply however, at the beginning of the autumn season, increasing by 0.6% for the month.

"This is going to be very beneficial for the market today. This neither confirms nor denies that the Fed did the right move yesterday, but this confirms the declining trend (in inflation)," said Art Hogan of Jefferies & Co.



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