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Consumer Inflation A Pussycat

Rising energy prices pushed the U.S. consumer price index up 0.3 percent in October, the Labor Department estimated Tuesday.

Prices are up 2 percent in the past year, the government said.

Prices for most goods and services were little changed on the month. However, large price increases were seen in two large categories of consumer spending: energy and medical care.

Excluding volatile food and energy categories, the core rate of inflation increased 0.2 percent in October. Prices of core goods and services are up 2.2 percent in the past year.

In a related development, the U.S. recorded another large trade deficit - $38.03 billion - in September, reflecting a surge in demand for foreign cars and airplanes.

The Commerce Department said the September deficit was down $254 million from the all-time high of $38.28 billion set in August, disappointing economists who had been looking for a bigger decline in the deficit of around $1 billion.

On the inflation front, the CPI rose 0.2 percent in September. Core prices were up 0.1 percent in September.

Economists were looking for a gain of 0.3 or 0.4 percent in the CPI and a 0.2 percent rise in the core rate.

The moderate increase in inflation keeps the pressure off the Federal Reserve, which lowered its overnight rate by a half percentage point two weeks ago.

Accelerating inflation would force the Fed to tighten monetary policy by raising interest rates. Any threat of outright deflation would force the Fed to adopt emergency measures to flood the economy with money to avoid a liquidity trap.

The October CPI supports neither scenario.

Energy prices rose 1.9 percent in October, including a 3.8 percent gain in gasoline prices. Gas prices are up 33 percent year-to-date, but are up just 7.2 percent in the past 12 months, a reflection of the volatility in gas prices.

Natural gas prices rose 2.9 percent in October, the largest gain since January 2001. Fuel oil prices climbed 1.9 percent.

Medical care is the other troubling area. Prices rose 0.6 percent in October, bringing the year-over-year increase to 4.8 percent. Hospital services rose 0.9 percent, drug prices increased 0.5 percent and doctors' services rose 0.6 percent. Hospital services prices are up 9.3 percent in the past 12 months.

Housing services, which represent nearly 41 percent of the CPI, showed only modest price increases, rising 0.3 percent, including fuel costs. Rent and owner's equivalent rent rose 0.3 percent.

Transportation costs rose 0.6 percent, largely because of fuel costs. New auto prices rose 0.4 percent, while airfares fell 2.4 percent.

Apparel prices were unchanged after rising 1.8 percent in September. Apparel prices are down 2.1 percent in the past 12 months.

Education and communication prices were also unchanged.

Recreation prices rose 0.3 percent. The catchall other category fell 0.5 percent, due to a 3.1 percent drop in cigarette prices.

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