Incomes edge up as inflation remains muted

NEW YORK (Reuters) - Incomes edged higher in September while underlying consumer prices rose modestly, data released on Thursday showed, suggesting inflation remains in check despite lower U.S. interest rates.

The Commerce Department said personal incomes grew at a 0.4 percent annual rate in September, matching the prior month’s gain and outstripping spending, which rose at a 0.3 percent rate.

Core consumer prices, which strip out volatile food and energy costs, rose at a 0.2 percent rate in September, double August’s 0.1 percent gain.

Over the past 12 months to September, core prices were up 1.8 percent. That matched August’s year-over-year rise, which officials said at the time was the slowest advance in 3-1/2 years.

The year-on-year gain “heads you into the fourth quarter on a good footing, from an inflation perspective,” said Pierre Ellis, senior economist at Decision Economics in New York.

In a separate report, U.S. workers filing first-time claims for unemployment insurance fell by 6,000 in the week to October 27, but the four-week moving average edged up to a six-month high.

“Right now, it doesn’t look like the economy is falling apart. It’s growing, but slowly,” said Doug Roberts, chief investment strategist at Channel Capital Research in Shrewsbury, New Jersey.

“It still leaves open the possibility the Fed can react quickly if it needs to,” he added.

After cutting interest rates by a quarter percentage point on Wednesday, Federal Reserve officials said inflation risks were now about equal with downside risks to economic growth.

However, they also said they continue to watch closely for price pressures, especially with the dollar near record lows and oil prices well above $90 a barrel.

Headline consumer prices, which include energy and food, also rose at a 0.2 percent rate in September after holding steady in August, the Commerce Department said.

The Fed’s rate cut this week was the second in as many months. The central bank slashed borrowing costs by half a percentage point in September to shield the economy from the effects of a housing slump and credit crisis sparked by losses on risky mortgage debt.

U.S. government bond prices held steady at higher levels after the report, with the yield on the benchmark 10-year note trading at 4.45 percent.

The dollar was lower against the euro and yen while U.S. stock futures pointed to a lower opening on Wall Street.

A separate report on October manufacturing sector activity from the Institute for Supply Management was due at 10 a.m. on Thursday.