Consumer prices likely rose modestly in October as inflation remains in check

Ahead of the Bell: Consumer Prices

WASHINGTON — Consumer prices likely rose modestly in October as inflation remains subdued during the early stages of a broad economic recovery.

Rising unemployment, nervous consumers and tight credit have kept prices in check. That has enabled the Federal Reserve to keep the short-term interest rate it controls at its record low rate of nearly zero. Fed Chairman Ben Bernanke earlier this week said that inflation probably will remain “subdued for some time.”

Economists surveyed by Thomson Reuters expect the Labor Department’s Consumer Price Index rose 0.2 percent last month, partially from higher gas prices. That would match the September bump in prices.

Excluding food and energy, “core” consumer prices are expected to grow 0.1 percent. Core prices rose 0.2 percent in September.

The report is due out Wednesday at 8:30 a.m. EST.

Over the 12 months ending in September, consumer prices are down 1.3 percent, as the recession kept a lid on price pressures across a wide range of products and services.

Core inflation rose a modest 1.5 percent over that same period, well within the Fed’s comfort zone.

The Labor Department on Tuesday said core inflation at the wholesale declined 0.6 percent last month. In the past year, core wholesale prices have risen 0.7 percent, the smallest gain in more than five years.

High unemployment helps restrain labor costs, which enables companies to hold prices down. The unemployment rate jumped to 10.2 percent in October, a 26-year high. Some economists say the jobless rate could rise as high as 11 percent by the middle of next year before starting to drift slowly downward.

Bernanke warned Monday that “headwinds” — including rising unemployment and hard-to-get credit — will restrain the recovery.

The expectation of low inflation gives the Fed leeway to hold rates low for an “extended period,” Bernanke said Monday, repeating a pledge made at the central bank’s meeting earlier this month. The Fed isn’t expected to start raising rates until after the jobless rate peaks, probably around mid-2010.

The overall 0.1 percent rise in wholesale prices reflected a 1.6 percent jump in energy prices as gasoline rose 1.9 percent. Oil prices rose as high as $81 per barrel in October, up from a price around $70 in September.

Elsewhere, food prices last month rose 1.6 percent, driven by a 24.2 percent jump in vegetable prices, the most in two years. Egg, fruit and milk costs also rose.