U.S. Consumer Price Increase Sparks Rate Rise Speculation

The rise in consumer prices in the United States could be an indication that inflation may be rising once again. The figures, accompanied by strong employment numbers in the United States, also spark a speculation that the Federal Reserve will increase rates in December.

The country’s Consumer Price Index (CPI) rose by 0.2% in October following two months of decline.

The prices were pushed upwards by the increased cost of electricity and petrol prices. In its survey of the US fund managers, the Bank of America Merrill Lynch found that four in every five fund managers interviewed anticipated a rate increase next month.

Leslie Preston, an economist who works for the TD Banks, notes that last month’s increase in inflation is a confirmation that the Fed will raise rates to ease inflationary pressures. This inflation rose by the same margin in September.

In September, medical costs accounted for the largest increase. Medical care costs rose by 0.7%, the biggest increase since April, while hospital prices grew by 2%. Food prices increased by 0.1%, the smallest gain since May, but then, they rose by 0.4 % in September. The biggest price falls were recorded in shoes, new cars and clothing.

Inflation in the United States has steadily been running below target. Due to the robust increase in employment in October, it is expected that the U.S. central bank will increase the interest rate from near zero in a meeting scheduled to take place from December 15 to 16.

A report released by the Fed shows that the manufacturing sector rose by 0.4% as the output of both long lasting and nondurable goods increased. The manufacturing sector, which accounts for 12% of the United States economy, has been hobbled by a strong dollar and spending cuts by energy firms as well as efforts by businesses to cut on the inventory bloat.

Millan Mulraine, deputy chief economist at TD Securities in New York, says that the current growth in the manufacturing sector is a sure sign that the headwinds that bogged the industry for some time are starting to ease. Mulraine adds that the growth is expected to continue in the coming months.

The Fed continually tracks the personal consumption expenditures price index, excluding energy and food that are running below the core CPI. The dollar recorded an 18% increase against other currencies of United State’s trading partners since June 2014, a situation that has made imports such as cars and clothes less expensive.

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