The seasonally-adjusted Consumer Price Index came in flat for the all-items index, and rose less than expectations in the core index, rising by 0.1% in September. Annually, all-items inflation is up 4.9%, and core inflation is up 2.5%, according to data released by the U.S. Labor Department on Thursday.

There were no revisions to the prior month's data.

Economists were expecting core consumer prices to rise by 0.2% in September, following a 0.2% rise in August and a 0.3% rise in July. The consensus forecast for the all-items index was a 0.1% rise.

The Fed's unofficial target rate for core inflation - which excludes volatile food and energy components - is 2.0% year-over-year.

Energy prices fell 1.9% in September but has gained 23.1% on the year, while gas prices fell .6% in the month but have risen 31.7 % in the year. Fuels & utilities fell 2.8% in the month but rose 11.8% on the year.

Food and beverages rose 0.6% on the month and are up 6.0% year-over-year. Commodities fell 0.1% from the previous month and are up 6.6% on the year.

Owners' equivalent rent rose 0.2% from the previous month and is now 2.4% higher than the same period last year.

The index for housing fell 0.1% in September but rose 3.5% on the year.

Services were flat in September, following a 0.1% rise in August; annually, the cost of services has gone up 3.8%.

Prices for apparel fell 0.1% in the month, and transportation costs fell 0.6% in the month.

Prior to the release, John Glassman, head trader and managing director for Pacific America Securities, said markets right now have more immediate concerns than a slight gain in prices. "I think inflation is being thrown out the window," he said, adding it would be a surprise if CPI moved markets.

The CPI report follows the release of the producer price index on Wednesday, which showed a bigger than expected increase in core prices. The annual core rate for PPI advanced to a 17-year high at 4.0%, but with economies weakening across the globe, analysts say it's only a matter of time before prices begin falling, which should give the Fed a green light to cut interest rates further if needed.

By Patrick McGee and edited by Stephen Huebl
©CEP News Ltd. 2008