U.S. consumer prices post largest rise in nine months

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer prices increased by the most in nine months in October amid gains in the cost of gasoline and rents, pointing to steadily rising inflation that likely will keep the Federal Reserve on track to raise interest rates again next month.

The Labor Department said on Wednesday its Consumer Price Index rose 0.3 percent last month after edging up 0.1 percent in September. In the 12 months through October, the CPI increased 2.5 percent, picking up from September's 2.3 percent rise.

Excluding the volatile food and energy components, the CPI climbed 0.2 percent. The so-called core CPI had gained 0.1 percent for two straight months.

In the 12 months through October, the core CPI increased 2.1 percent after advancing 2.2 percent in September.

Economists polled by Reuters had forecast the CPI climbing 0.3 percent and the core CPI gaining 0.2 percent in October.

U.S. Treasury yields briefly declined before turning higher after the data while the dollar held its losses against a basket of currencies. U.S. stock index futures were trading higher. Inflation pressures are building, partly driven by the lowest unemployment rate in nearly 49 years and strong domestic demand. Annual wage growth recorded its largest increase in 9-1/2 years in October.

CHEAPER FOOD

The Fed, which has a 2 percent inflation target, tracks a different measure, the personal consumption expenditures (PCE) price index excluding food and energy, for monetary policy.

The core PCE price index has increased 2.0 percent for five straight months.

The U.S. central bank left interest rates unchanged last Thursday, but is expected to increase borrowing costs in December for a fourth time this year. In its statement after last week's policy meeting, the Fed noted that annual inflation measures "remain near 2 percent."

Last month, gasoline prices rebounded 3.0 percent, accounting for more than one-third of the increase in the CPI, after slipping 0.2 percent in September.

Food prices fell 0.1 percent after being unchanged in September. Food consumed at home declined for a second straight month in October. Food prices were held down by cheaper bread, cereals, pork, dairy products, fruits and vegetables.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 percent in October after advancing 0.2 percent in the prior month. The rent index gained 0.2 percent.

Healthcare costs increased 0.2 percent last month after a similar gain in September. Apparel prices edged up 0.1 percent after jumping 0.9 percent in September.

There were also increases in the costs of household furnishings and used motor vehicle and trucks as well as motor vehicle insurance and tobacco.

But prices for new motor vehicles dropped 0.2 percent last month. Communications costs fell as did prices for recreation and personal care products.

(Reporting by Lucia Mutikani; Editing by Paul Simao)