By Chris Cermak

WASHINGTON (MNI) – Headline U.S. inflation is expected to have
eased a little in September compared to August, but a still-high reading
could push the annual rate to its highest level in three years.

The Consumer Price Index out Wednesday is expected to post a 0.3%
gain month-over-month, according to a survey of economists by Market
News International. That would be down from 0.4% in August, but would
indicate a year-over-year rate of 3.9%.

September’s slight easing of monthly headline pressures should not
mask the steady gains in the cost of core consumer goods, which are
slowly being pushed up by producers that are running out of ways to
avoid passing on their own higher costs.

Core CPI is expected at 0.2% for September, the same as in August,
according to the MNI survey. That would push the core price index over
the past 12 months to 2.1%, the highest since October 2008 and just
above the Federal Reserve’s unofficial target inflation rate of 2%.

“I think we are witnessing today a very broad and what I would call
moderate increase in inflationary pressures,” Ken Mayland, president of
Clearview Economics, said in an interview with Market News
International.

Producer price data Tuesday was reported much higher than expected
at 0.8% for September, after coming in flat the month previous. The core
rate rose 0.2%. Year-over-year headline PPI was pushed up to 6.9%, with
core at 2.5%, the highest since June 2009.

“I think we’re already seeing the pass-through, but it’s not always
visible in the price of everything,” said Mayland, noting that
productivity gains and lean inventories have so far limited pass-through
to CPI. But “the inflationary pressures that are building in the
pipelines, they’re too great these days for the increases in technology
to offset them.”

Headline CPI is expected to be driven up by higher-than-seasonal
gas prices, while higher rents could drive up the core rate, according
to an analysis by Credit Suisse. The PPI energy index climbed 2.3% in
September, led by a 4.2% jump in gasoline, though a Bureau of Labor
Statistics analyst said the numbers were inflated as gas peaked on the
pricing date.

September’s CPI will also round out the third-quarter inflation
average used to determine the 2012 cost-of-living adjustment for Social
Security and many other goverment transfer payments. The COLA is
expected to rise for the first time in three years.

Despite the inflation gains, the Federal Reserve has said it
expects prices to moderate in the coming quarters as the sharp commodity
gains from earlier this year are steadily erased. That reading of
inflation’s trend allowed the Fed to announce Operation Twist in
September to help stimulate a weak economy and employment situation.

CPI will be released at 8:30 a.m. ET Wednesday by the Labor
Department.

— Chris Cermak is a Washington reporter with Need to Know News

** Market News International Washington Bureau: 202-371-2121 **

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