US inflation slows down as focus turns to how this will affect interest rates in 2018

Underlying US consumer inflation slowed in November, held down by weak health care costs and the biggest drop in apparel prices in nearly two decades, which could impact the pace at which the Federal Reserve raises interest rates next year.

Inflation has moderated for much of this year, leading to concern among some Fed officials that the factors holding back price pressures could prove more persistent. The US central bank is expected to raise interest rates when policymakers conclude a two-day meeting later on Wednesday.

The Fed has increased borrowing costs twice this year, encouraged by a tightening labour market and strengthening economy. It has forecast three rate hikes next year.

“The lack of a sustained pickup in core CPI does make the Fed deliberations about the pace of monetary policy tightening next year more complicated,” said Kathy Bostjancic, head of US macro investor services at Oxford Economics in New York.

The Labour Department said its Consumer Price Index excluding the volatile food and energy components ticked up 0.1 per cent also as prices for airline fares and household furnishing fell. The so-called core CPI advanced 0.2 per cent in October.

As a result, the annual increase in the core CPI slowed to 1.7 per cent in November from 1.8 per cent in October.