Lodging Costs Push Prices 0.2% Higher

American consumer prices rose during September as expected, but a surge in lodging costs pushed the core rate higher than anticipated, the government said yesterday.Meanwhile, home construction took a tumble that was sharper than expected, another set of data showed.The Consumer Price Index rose 0.2% last month, the highest rate since June, the Labor Department said. The core index – which excludes typically volatile food and energy items – rose 0.3%, the fastest pace since April.The 0.2% increase in the CPI was in line with expectations, while the 0.3% rise in the core rate exceeded the 0.2% median forecast of 18 economists surveyed by Dow Jones Newswires and CNBC.Year over year, the CPI climbed 2.5% and the core went up 2.0% – what A.G. Edwards analyst Patrick Fearon called a “pretty modest range.”“Those are numbers that are historically pretty benign,” he said.In a separate report, the Commerce Department said housing starts decreased 6.0% last month to a seasonally adjusted 1.898 million annual rate.Economists were expecting a pullback in housing starts, but they say construction remains at a healthy level – while pointing out building permits climbed.“The report was actually pretty decent,” Mr. Fearon said.But the 6.0% drop in starts was weaker than analysts expected. A Dow Jones Newswires-CNBC poll of 18 economists predicted September housing starts would fall just 2.8% to a 1.945 million annual rate.The job market, while improving, was surprisingly weak last month as non-farm payrolls rose by just 96,000 jobs.But mortgage rates remain relatively low; last month, the average 30-year loan held below the 6% mark after drifting lower in midsummer, according to Freddie Mac data.“As predicted, housing starts dipped in September, based in part on a rash of bad weather in some regions of the country and a sluggish job market,” said the chief economist at Quicken Loans, Bob Walters. “Consumer sentiment also was tempered by rising energy prices and ongoing concerns about Iraq. On a more positive note, mortgage rates, which declined slightly last week, remain at near record lows.”In another bright sign for the industry, yesterday’s data showed building permits increased by 1.8% to a 2.005 million annual rate. The number was a surprise; analysts surveyed had expected permits to drop 1.5% to 1.94 million. Permits fell 4.7% in August to 1.969 million – revised higher from a previously reported 5.5% drop to 1.952 million.“The fact that permits were up and housing starts down really suggests there could have been some serious weather effects that depressed the actual starts number,” said the president of ClearView Economics in Pepper Pike, Ohio, Ken Mayland.Four hurricanes struck the Southeast in August and September, causing severe damage and flooding. Yesterday’s data showed starts fell only 1.0% in the South last month – but, farther up the coast, plunged 26.9% in the Northeast in that region’s biggest slide since May 2001’s 29.1% tumble.Elsewhere, starts declined 4.6% in the Midwest and 7.9% in the West.Mr. Mayland said the overall level of starts – 1.898 million – is healthy for the industry and the economy.“These homes are going to need appliances, furniture, carpeting,” he said. “All of this is good for the holiday selling season. This will provide some good support for the economy.”In its report on consumer prices, the Labor Department attributed “about three-fourths’ of the 0.3% increase in the core index to a surge in the price of lodging away from home, which climbed 2.9% – the fastest clip since April.“People are traveling again for business,” Mr. Mayland said. “That’s firming up these lodging prices.”Energy prices declined for a third month in a row in September, falling 0.4%. Gasoline prices rose 0.1% after several months of decline. Natural-gas prices fell 3.1% in the biggest decline since April 2003.But Mr. Mayland sees energy prices jumping up, darkening the inflation picture and keeping pressure on the Federal Reserve to tighten interest rates further.“We had a run of some good inflation numbers,” he said. “Now I think we’re going to see a run of some higher prices. That’s all the more reason the Fed has to continue on this course of raising short-term interest rates.”Over the last year, crude-oil prices have risen more than 40%, setting a record of $55.33 a barrel last week.Central bank policymakers, however, have remained optimistic about the outlook for economic growth and inflation. The rise in oil prices “is likely to prove less consequential to economic growth and inflation than in the 1970s,” Fed Chairman Alan Greenspan said Friday.As a result, the bank is widely expected to persist with the campaign of interest-rate increases it began in June. Since then, the Fed has raised the key federal funds rate three times, in increments of a quarter percentage point. It is expected to do so again next month, lifting the rate to 2%.

Lodging Costs Push Prices 0.2% Higher

Lodging Costs Push Prices 0.2% Higher

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