US inflation slowed more than expected in September even as retail sales picked up, keeping pressure on the Federal Reserve to act soon to lessen the risk of a downward price spiral. The US consumer price index rose 0.1 percent in September and the core index, which excludes volatile food and energy prices, remained unchanged for the second straight month, data released by the Labour Department showed.
-- Retail sales rise 0.6pc, beat expectations
Core prices were up just 0.8 percent in the 12 months through September, the smallest rise since 1961. "If anything that may make (the Fed) more likely to embark on asset purchases, and that may mean they're going to be more aggressive with those asset purchases," said Richard Bryant, head of treasury trading at MF Global Securities in New York.
A prolonged drop in prices would likely lead consumers to put off purchases and businesses to cancel investments, compounding economic woes that are already weighing heavily on US President Barack Obama and his fellow Democrats ahead of November 2 congressional elections. Investors expect the Fed could pump billions of dollars into the economy as soon as next month in a second major round of "quantitative easing" aimed at supporting the recovery.
"(This) gives the Fed room to do whatever it wants to do," said Jim Awad, managing director at Zephyr Management in New York. Ongoing US economic weakness and the prospect of further dollar printing are creating headaches around the world as yield-hungry investors rush into emerging markets.
That has led currencies like the Brazilian real to soar, making it harder to export goods to the US market. ECB policymaker Jose Manuel Gonzalez-Paramo said instability in foreign exchange markets was bad but denied major economies were embroiled in a currency war, as Brazil has alleged.
At the same time, Friday's data did hold some glimmers of hope for US economy. Sales at US retailers rose by a stronger-than-expected 0.6 percent in September, suggesting consumption may have been a bit stronger than economists had anticipated in the third quarter. Also, inventories at US businesses rose strongly in August, while the New York Fed's "Empire State" business index showed factory in New York State jumped during October.
"Retail sales and the Empire State index were strong, suggesting the economy is indeed improving. But inflation remains low and troubling," said Hugh Johnson, chief investment officer at Hugh Johnson Advisors in Albany, New York. The economy, which slowed sharply in the second quarter, has kept the pressure on the Democratic party, which looks likely to lose control of the US House of Representatives in November 2 elections. US consumer sentiment unexpectedly dipped in early October to its weakest level since July, while consumers' assessments of government economic policies fell to the lowest level since Obama took office, a separate survey released on Friday showed.