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Published: Wednesday, 10/19/2011

Consumers paid more for gas and food in September, though other price increases were modest

BY CHRISTOPHER S. RUGABER
AP ECONOMICS WRITER

WASHINGTON (AP) — Consumers paid more for food and gas last month, although inflation outside those volatile categories was tame.

The Labor Department says the Consumer Price Index rose 0.3 percent in September, below a 0.4 percent rise in August. Excluding food and energy, so-called core prices increased 0.1 percent, the smallest rise since March.

Inflation has worsened this year, after the cost of oil, grains and other commodities spiked in the spring. But economists expect price increases to moderate in the coming months as weak growth lowers commodity prices.

A small amount of inflation is good for the economy. It encourages businesses and consumers to spend and invest money sooner rather than later, before inflation erodes its value.

Still, Americans are facing higher food and gas prices at a difficult time. Unemployment has been roughly 9 percent for more than two years. Hiring is slow and few people are seeing much in the way of raises. Steeper prices for basic necessities have forced many to cut back on more discretionary purchases. That has slowed overall growth.

Food prices rose 0.4 percent in September, pushed up by big increases in the dairy, cereals, and fruits and vegetables categories. Gas prices rose 2.9 percent.

Dairy prices have jumped 10.2 percent in the past year. Gas prices have soared 33.3 percent.

Those increases are key reasons overall inflation has jumped 3.9 percent in the 12 months ending in September, the largest year-over-year increase in three years. Core prices have increased 2 percent for the same period.

At the same time, inflation-adjusted average hourly earnings fell 0.1 percent in September, the Labor Department said Wednesday. In the past year, average inflation-adjusted hourly earnings have dropped 1.9 percent.

The annual increase in consumer prices means that 55 million Social Security beneficiaries will receive higher benefits next year. They will get a 3.6 percent cost-of-living increase, the first since 2009. Inflation has been so low in the past two years that Social Security checks, which are tied to the CPI, haven't changed.

The core index has reached the top of the Federal Reserve's informal inflation target of between 1.5 percent and 2 percent. But Fed policymakers also expect inflation to moderate in the coming months. Last month, Fed officials said that inflation would decline to levels "at or below" the target, according to minutes released last week.

On a brighter note, prices for other goods have fallen or flattened. Clothing prices plummeted 1.1 percent last month, their steepest drop in 13 years. That comes after four months of sharp increases. Used car prices fell, while new car prices were unchanged for the third straight month.

Rental costs, which have been pushing up the core price index in recent months, rose but at a slower pace than previous months.

A surge in gas prices drove wholesale costs up 0.8 percent in September, the government said Tuesday. Economists cautioned that the increase largely reflected one-time factors and broader inflation is likely to be modest.

Core wholesale prices rose only 0.2 percent.



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