Inflation Settles Down In October

Inflation settled back down in October, as consumers paid less for the cars, gasoline and cigarettes that a month earlier took a toll on their pocketbooks, government data showed on Thursday.

Retail prices, as measured in the consumer price index, rose 0.2 percent last month. Core consumer prices, which exclude the sporadic food and energy components, were also up 0.2 percent.

The modest gains exactly hit the target forecast in a
CBS.MarketWatch.com survey of economists.

The CPI in September had risen 0.5 percent overall and by 0.3 percent in the core sectors.

That steep increase was isolated to three often-volatile categories: energy, autos and tobacco.

Tame inflation outside of energy has contributed to the Federal Reserve's steady interest-rate policy since May.

For much of the year, the core CPI has stuck to a 0.2 percent gain or less.

But so far in 2000, the core CPI has advanced at a 2.7 percent rate compared to a 1.9 percent clip for all of 1999.

The central bank opted again on Wednesday to leave its bank-lending target at 6.5 percent.

Policymakers said, however, that along with a tight job market, the perception that higher energy prices would spread to other corners of the economy prompted them to maintain a "tightening" bias.

The central bank sees the risks in the economy still favoring inflation.

Prices of energy alone rose a modest 0.2 percent as a 1.4 percent drop in pump prices offset gains for fuel oil and natural gas.

Food prices edged 0.1 percent higher, as cheaper beef and fresh vegetables countered price increases for most other products.

Housing, drug prescriptions and apparel costs all rose.

Transportation costs fell 0.4 percent largely because auto dealerships had to markdown last year's models to move them off the lots. A 3.5 percent drop in airline fares, the largest fall since June 1999, was also a factor.

The price of tobacco and smoking products fell 2.8 percent in October, the Labor Department said, the largest drop since March 1999.

All told, real average weekly earnings of U.S. workers were essentially unchanged between September and October.

A 0.4-percent increase in wages and salaries was offset by a shorter workweek and a 0.1 percent rise for the CPI-W, a slightly different measurement than the CPI tracked by financial markets.

In a separate release, the Labor Department reported Thursday that first time requests for state unemployment benefits decreased 20,000, to 326,000.

The decline, in part, made up for the steep increase in jobless claims a week earlier due to layoffs in the auto industry.

The seasonally adjusted four-week moving average, typically viewed as a more accurate snapshot of the labor market, rose 4,250 to 322,250. That level is the highest since Jan. 23, 1999.

Undoubtedly the labor market has slackened some from levels seen earlier in the year.

Yet signs of som moderation are not enough to pacify the inflation-wary Federal Reserve, which said Wednesday that the utilization of the pool of available workers remained extraordinarily high.

By Rachel Koning