Consumer prices outside food and energy rose at their slowest pace in six months in September as the cost of apparel and used vehicles fell, suggesting inflation pressures remained contained.
Another report on Wednesday showed groundbreaking on new homes rose at the fastest rate in 1-1/2 years, though most of the gains came from the often volatile multi-family construction.
The Labor Department said its core Consumer Price Index edged up 0.1 percent, also held back by flat prices for new cars and a modest rise in rental-related costs.
Economists had expected core CPI to rise 0.2 percent last month. The index increased 0.2 percent in August.
Overall consumer prices increased 0.3 percent last month, as expected, after advancing 0.4 percent in August.
The moderate rise in consumer prices offered assurance that inflation pressures remained in check despite a sharp rise in wholesale prices last month.
The housing data combined with CPI data shows that the economy, while it still is muddling along, is showing a little forward momentum that has not generally been anticipated by most analysts, said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon.
The reports also suggested the Federal Reserve had some wiggle room for further monetary policy easing, should the economic recovery falter, even though the year-on-year change in core inflation has already reached 2 percent.
The Fed keeps a close eye on core inflation as it tries to guide the overall inflation to 2 percent or a little under. The 12-month change in overall inflation hit 3.9 percent, the highest since September 2008.
The U.S. central bank is searching for more ways to boost growth and lower an unemployment rate that has stubbornly remained above 9 percent. It has already cut overnight lending rates to near zero and pumped $2.3 trillion into the economy.
For now, the pressure for monetary stimulus has lessened amid signs the economy fared much better in the third quarter.
HOUSE STARTS JUMP
That positive tone on the economy was reinforced by a separate report from the Commerce Department showing housing starts increased 15.0 percent to a seasonally-adjusted annual rate of 658,000 units, well above economists' expectations for a 590,000-unit rate. However, almost all the gains were in the volatile multifamily segment.
The housing sector remains far from recovery. Another report showed applications for U.S. home mortgages tumbled 14.9 percent last week as demand for both refinancing and purchases fizzled.
U.S. stock index futures pared losses on Wednesday after the data. U.S. Treasury debt prices extended losses, while the dollar fell against the euro.
Core consumer prices last month were restrained by new motor vehicle costs, which were unchanged for a third straight month. This likely reflects a normalization in supplies after the March earthquake in Japan disrupted production.
Prices for used cars and trucks fell 0.6 percent after months of gains. Apparel prices dropped 1.1 percent, the largest decline since September 1998.
Shelter costs edged up 0.1 percent, the smallest rise since April, as owners' equivalent rent edged up 0.1 percent after rising 0.2 percent in August.
The Bureau of Labor Statistics uses owners equivalent rent to measure the amount homeowners would pay to rent or would earn from renting their property.
A 2.9 percent increase in the price of gasoline pushed overall consumer prices last month. Gasoline had risen 1.9 percent in August. Food prices gained 0.4 percent after increasing 0.5 percent in August.
(Reporting by Lucia Mutikani and Jason Lange; Editing by Neil Stempleman)