Annual core CPI rise smallest on record

A customer rides on his cart as he leaves a store with his purchases in Alexandria, Virginia, September 15, 2009.

WASHINGTON (Reuters) - U.S. consumer prices rose less than expected in October and the increase in the year-on-year core rate was the smallest on record, data showed on Wednesday, further supporting the Federal Reserve's decision to ease monetary policy.

The Labor Department said its Consumer Price Index increased 0.2 percent last month, as energy costs rose, after edging up 0.1 percent in September. October's increase was below economists' expectations for a 0.3 percent gain.

Excluding volatile food and energy prices, core CPI was flat for a third straight month in October and the annual increase of 0.6 percent was the smallest since records started in 1957, the department said.

Economists polled by Reuters had expected core CPI to edge up 0.1 percent in October and the year-on-year rate to rise 0.7 percent after a 0.8 percent increase in September.

The data came on the heels of a report on Tuesday that showed core producer prices recorded their biggest decline in more than four years in October as vehicle prices tumbled.

The report could help to ease criticism of the Fed's November 3 decision to inject additional money into the economy through purchases of $600 billion worth of government debt.

The U.S. central bank's unpopular decision was driven by policymakers' desire to prevent the current disinflation environment from translating into a crippling phase of deflation and to boost a sluggish labor market.

(Reporting by Lucia Mutikani; Editing by Neil Stempleman)