US consumer prices rose 0.2 percent in October despite a dip in energy prices as the cost of housing notched the largest gain in nearly five years, government data showed on Wednesday.
Excluding food and energy costs, prices climbed 0.2 percent, the Labour Department said. The gain in the so-called core rate matched expectations and soothed bond markets.
In a separate report, the Labour Department said real average weekly earnings rose 0.4 percent in October, the first gain in four months and the largest since July 2004.
A third report out of the Commerce Department showed business inventories grew a faster-than-expected 0.5 percent pace in September but remained historically lean.
Financial markets focused on the inflation report, with Treasury prices advancing on expectations the Federal Reserve would maintain a campaign of moderate rate hikes, rather than moving at a faster tempo.
"The core print was pretty much as expected, while the headline is just a touch firmer than expectations," said Ronald Simpson at Action Economics LLC. "It keeps the Fed expectations on track for a hike at their next meeting and the meeting after that."
Economists had forecast overall consumer prices to hold flat in October.
Over the past year, consumer prices have jumped 4.3 percent, but core inflation has remained relatively tame, up 2.1 percent in the same period.
October producer prices, released by the Labour Department on Tuesday, showed much the same pattern, with headline numbers up but the core measure declining 0.3 percent.
The Fed is on high alert for signs of inflation amid solid economic growth.
But after a surge in September following hurricanes Katrina and Rita, energy prices fell 0.2 percent in October, Wednesday's consumer price report showed. Gasoline prices, which hit a record high after Katrina, dropped 4.5 percent last month, the Labour Department said. But natural gas prices continued to climb, rising 14 percent.
Energy prices have soared 29.5 percent over the past 12 months.
"The headline number was worse than expected," Patrick Fearon, senior economist at A.G. Edwards & Sons in St. Louis said of the inflation report.
While energy costs edged back last month, the cost of housing surged and pushed overall consumer prices higher.
Housing costs, which account for more than 40 percent of the consumer price index, rose 0.9 percent last month - the largest gain since January 2001 when they climbed 1.3 percent, the department said.
Housing costs have jumped 3.9 percent over the past 12 months.
Other prices rose in October. Food costs increased 0.3 percent while medical care rose 0.5 percent and the cost of services increased 0.7 percent, the Labour Department said.