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U.S. Consumer Inflation Rises in September as Retail Sales Accelerate

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U.S. consumer prices accelerated in September as fuel costs rose, possibly giving the Federal Reserve the ammo it needs to raise interest rates for a third time this year. Meanwhile, the value of retail sales climbed in September, signs of firming consumer spending that could bolster the outlook on third-quarter growth.

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Consumer Inflation Ticks Higher

The Consumer Price Index (CPI) rose 0.5% in September and 2.2% annually, the Labor Department reported Friday. Analysts in a median estimate called for an annual gain of 2.3%.

So-called core inflation, which excludes volatile items such as food and energy, rose 0.1% on month and 1.7% annually.

CPI is a closely-watched measure of cost pressures, but isn’t the one used by the Fed. Central bankers prefer the core personal consumption expenditure (PCE) index, which is bundled in the monthly report on consumer spending.

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Retail Sales Bounce Back

Receipts at retail stores rebounded in September, following an unexpected drop in August that was partly owed to Hurricane Harvey. The Commerce Department said retail sales increased 1.6% last month, compared to expectations calling for a 1.7% increase.

Most retail spending categories accelerated in September, led by a sharp increase at gasoline stations. The category rose 5.8% month-over-month.

Motor vehicle sales climbed 3.6% from the previous month. Spending on building materials, clothes and food services also increased, official data showed.

Retail spending is used to gauge trends in consumption, which drives more than two-thirds of U.S. domestic output.

The U.S. economy in Q2 registered its fastest growth in three years, but will struggle to repeat that performance in the third quarter after multiple hurricanes ravaged the southern shore lines. Goldman Sachs believes domestic output grew just 2% last quarter after cutting its estimate by 0.8 percentage point. Moody’s estimates the combined cost of Hurricanes Harvey and Irma at $150 billion to $200 billion.

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